Market Expectations, The Federal Reserve, And Trump 2.0

Summary

• The Fed’s hawkish stance and potential reduction in rate cuts for 2025 have unsettled markets, with significant implications for future interest rate expectations.
• Trump 2.0’s policies, including tax cuts, tariffs, and deregulation, are likely to stoke inflation, complicating the Fed’s dual mandate of price stability and full employment.
• Deportation of 11 million undocumented immigrants could severely impact labor markets, particularly in agriculture, hospitality, and construction, further driving inflationary pressures.
• Market expectations for federal funds rate decreases are unrealistic given current inflation levels and the potential economic disruptions from Trump 2.0 policies.

Monty Rakusen

The hawkish result of December’s meeting of the Fed’s Open Market Committee (FOMC) spooked markets to the core. Admittedly, changing the script on interest rate cuts for 2025 from as many as four to as few as two—or even less—is certainly

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