Source: Jinshi Data

Academics surveyed by the United Kingdom's Financial Times say that due to concerns that the Trump administration's policies could exacerbate inflation, the Federal Reserve will adopt a more cautious stance towards interest rate cuts.

Compared to the survey conducted in September in collaboration with the University of Chicago Booth School of Business, economists surveyed between December 11 and 13 have raised their forecasts for next year's federal funds rate. The vast majority of respondents believe that by the end of 2025, rates will hover around 3.5% or higher, while most respondents in September indicated that rates could drop below 3.5% by then.

If the Federal Reserve cuts rates by 25 basis points as expected at this week's meeting, the policy rate will remain at 4.25-4.5%.

Former Federal Reserve economist Jonathan Wright, now at Johns Hopkins University, stated, "In the past few months, the downside risks in the labor market have become less severe, while progress on inflation seems to have stalled somewhat."

Wright said: "The decline in inflation has been much easier than I and most people expected, but I think it will be a bit difficult to reach the target, so the Federal Reserve is certainly unlikely to rush to cut interest rates."

Tara Sinclair, a former Treasury official and current professor at George Washington University, stated that this could even translate into the Federal Reserve extending the period of pausing interest rate cuts after lowering rates in December and maintaining stable rates for the rest of the year.

"In my view, they need to keep rates in a restrictive range until inflation clearly returns to the target level," she added.

Officials are strategizing how quickly to achieve a 'neutral' policy interest rate that neither stimulates nor suppresses growth. They have publicly stated that once they approach this level, they will slow down the pace of interest rate cuts. However, Federal Reserve Chairman Powell admitted that policymakers are also unclear about where this level specifically lies.

However, he told reporters in November, "We are quite certain it is below the current interest rate level."

Next month, Trump will return to the White House, which will have a huge impact on the Federal Reserve's policy outlook. Trump vowed to impose tariffs comprehensively, deport millions of immigrants, while also cutting taxes and regulations.

Surveys show that slightly more than 60% of economists believe Trump's plans will have a negative impact on growth in the USA. If his plans for broad tariffs and heavy taxation on China materialize, most respondents are also prepared for higher inflation.

Amid persistent concerns over price pressures, these worries are spreading.

Among the 47 economists surveyed, slightly more than 80% indicated that the core personal consumption expenditures price index (PCE), excluding food and Energy prices, will not fall below 2% before January 2026. In September, only about 35% of respondents made this prediction.

Compared to the survey in September, the median forecast for core PCE inflation over the next 12 months has also risen from 2.2% to 2.5%.

Economists remain optimistic about the economic outlook, with the median forecast for next year's real GDP growth rising from 2% in September to 2.3%. Concerns about a recession are also distant, with more than half of the respondents estimating that the next economic downturn will not occur before the third quarter of 2026.

However, Sinclair warned that Trump's policies will begin to have an impact in the long run. She said, "I firmly believe that this policy combination is not good in the long run."

Economists warn that this period could be difficult for the Federal Reserve, and if the central bank is forced to maintain high interest rates to offset the impact of Trump's policies, there could be a "confrontation" between Trump and Powell.

Wright stated that given the surge in price pressure after the COVID-19 pandemic, the Federal Reserve's attitude towards inflation issues will be "more tense" than in the past.

编辑/jayden