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The Fed is likely to cut interest rates today, a second time in response to inflationary pressures weighing on the American people.
According to the latest data from cryptocurrency prediction platform Polymarket, investors expect the FED to cut rates by 25 basis points with a 99% probability.
But the recent presidential election has introduced a new layer of uncertainty into the Fed's future path, especially given President-elect Donald Trump's economic agenda, which some analysts warn could fuel inflation.
Trump’s proposals, such as tariffs on imports and mass deportations, are expected to put upward pressure on inflation and complicate the Fed’s approach to interest rates. The Fed’s independence was publicly criticized during Trump’s previous term, with former Chairman Jerome Powell facing pressure from Trump to raise interest rates to control inflation. With Trump back in office, concerns have begun to surface that political interference will once again be in the central bank’s traditionally independent policymaking process.
The Fed’s decision comes at a time when the economy is sending mixed signals: growth has been holding steady while hiring has shown signs of slowing. However, strong consumer spending, largely driven by high-income households, is raising concerns that further rate cuts could lead to economic overstimulation and a resurgence of inflation. Adding to the confusion, financial markets have seen Treasury yields rise sharply since the Fed’s last rate cut in September, effectively raising borrowing costs across the economy and diluting the impact of the Fed’s rate cuts on consumer spending.
*This is not investment advice.