Capital Economy, Business and Finance
Jay Powell’s job just became a whole lot harder. The Fed chair decided to cut interest rates by a quarter point yesterday, in full knowledge that Trump 2.0 could rekindle inflation.
Investors had assumed the cut was going ahead, so eyes now turn to what the 19-member Fed committee will do in December. Fed minutes from 2016 show officials hotly debated how to model the possibility of Trump’s first raft of tax cuts.
If he wins both chambers of Congress, they may once again have to adjust underlying assumptions. The Bank of England also decided to proceed with cutting rates to 4.75 per cent, but signalled a further move is unlikely before January.
The monetary policy committee noted “upside risks” from trade fragmentation – ie Trump’s tariffs – as well as the inflationary impact of Rachel Reeves’ budget.
The BofE now expects inflation to hit 2.2 per cent in 2026 before dropping to 1.8 in 2027.
