Financial Alliance reported on November 12th (Editor Zhao Hao) Former Cleveland Fed Chair Loretta Mester said that if the global tariffs proposed by the US President-elect Trump take effect, the Fed's interest rate cut next year may be less than previously expected.

On Tuesday local time (November 12th), Mester stated at an event in London that with the new Republican government advancing fiscal plans, the Fed's outlook will change. The market expects the rate cut to be less than the previous four times, which may be correct.

In June of this year, Mester, who had served as the Cleveland Fed Chair for 10 years, retired. She is often seen as one of the "hawkish" officials of the Fed. "My personal view is that the market is correct. Next year, they may not cut interest rates as significantly as assumed or expected in September."

In September, the Fed announced a 50 basis point rate cut, initiating a period of monetary easing. The "dot plot" released at the same time showed that the median expectation of 19 policymakers for the end of 2024 fell between 4.25% and 4.5%.

The median forecast also indicates that policymakers believe the rate by the end of 2025 will be between 3.25% and 3.5%. This means that by 2025, there will be a cumulative rate cut of 100 basis points, which Mester referred to as "four rate cuts", each 25 basis points.

However, after Trump's victory last week, the market lowered its expectations for rate cuts, with increasing speculation about the President-elect's tariff proposal and its impact on the global economy. Trump has stated that he will impose "global benchmark tariffs" on all imported commodities.

However, economists warn that such measures could trigger inflation, requiring the Fed to maintain rates at higher levels. Mester believes that the most important central bank in the global financial system will still cut rates by 25 basis points next month, but the rate cut next year will not exceed four times.

Mester said that policymakers may "preliminarily understand" the Trump administration's fiscal proposal in December, but it is expected that more details of the proposal and its impact on mmf policy will not be available until early next year.

"Not only tariffs, but there may also be changes in immigration, taxes, and spending. All these factors must be considered together to determine whether there has been a change in the economic outlook of the usa.

It should be pointed out that Mester did not mention another factor - Trump's possible intervention in Fed policy. Last week, Republican Senator Mike Lee posted calling for the Fed to obey the president, with Elon Musk expressing support for this.

Editor/ping