Fed's Tightrope: Navigating Economic Shifts in Trump's Second Term

The U.S. Federal Reserve is poised to reduce its policy rate amid uncertainties in economic policy under Donald Trump's potential second term. Trump's economic policies could alter growth and inflation forecasts, affecting long-term fiscal prospects. The outlook for interest rates and inflation remains complex and unpredictable.

The U.S. Federal Reserve is expected to cut its benchmark policy rate by a quarter point at its policy meeting on Thursday. This decision comes as central bank officials prepare for potential economic changes in the wake of Donald Trump's anticipated return to the presidency following Tuesday's election.

With Trump and potentially a Republican-controlled Congress, economists anticipate shifts in policies affecting tariffs, taxes, and immigration. These could significantly alter the economic landscape the Fed had envisioned, influencing factors such as growth and inflation in the coming year.

Market reactions suggest the Fed might reduce interest rates less than previously thought to adapt to a budding economic regime characterized by higher federal deficits and potential rises in short-term growth and inflation. This could create challenges for the Fed, which aims to balance inflation and employment, all under the scrutiny of Trump's economic policy maneuvers.

(With inputs from agencies.)