Fed officials lean ‘neutral’ on policy but expect clarity once Trump begins

United States Federal Reserve officials are leaning toward a neutral policy stance as they await clearer direction from Donald Trump once his presidential term begins.

“I expect that the coming months should bring clarity on the incoming administration’s policies and the carry-over of inflationary pressures from 2024,” Fed Governor Michelle W. Bowman said in a Jan. 9 speech in California.

Fed officials cautious ahead of Trump administration 

The speech from Bowman, along with a speech from Kansas City Federal Reserve President Jeff Schmid on the same day, both suggest that further rate cuts may not be necessary due to the US economy’s strong performance toward the end of 2024 and inflation staying “above its 2% target.”

“I believe we are near the point where the economy needs neither restriction nor support, and that policy should be neutral,” Schmid said.

Bowman said that the Fed should be “cautious” in any changes to the policy rate as the agency moves toward a “more neutral setting.”

Meanwhile, Philadelphia Federal Reserve President Patrick Harker said in a speech on the same day that it is “appropriate for us to take a bit of a pause right now and see how things shake out.” Harker said:

“We’re not talking about a long pause potentially, but let’s see how things shake out. There’s a lot of uncertainty.”

Bowman said being too aggressive with moving the policy rate down carries “the risk of unnecessarily stoking demand and potentially reigniting inflationary pressures.”

Schmid said that the Fed should wait for more “clarity and then seek to understand the effects on economic activity, the labor market, and inflation.”

Markets have tipped a 95.2% probability that interest rates will remain unchanged at the Fed’s next meeting on Jan. 29.

However, Ryan Lee, chief analyst at Bitget Research, recently told Cointelegraph that Bitcoin’s (BTC) dip down to $92,500 on Jan. 8 was caused by “strong US economic data pointing toward potential interest rate hikes.”

“This development makes cryptocurrencies less attractive as investments, while the Federal Reserve’s signals of tighter monetary policy further intensify market corrections,” Lee said.

Fewer rate cuts forecasted than the crypto industry anticipated 

On Dec. 18, the Fed announced a 0.25% rate cut. Bowman said she supported the December policy action because it “represented the Committee’s final step in the policy recalibration phase.”

It followed cuts of 0.50% in September and 0.25% in November.

Related: Bitcoin’s Trump trade dented by rising yields and strong US dollar

Although crypto market participants had anticipated the decision in December, Powell’s indication that only two more rate cuts would occur in 2025 raised concerns in the market.

The Fed committee also raised their 2025 inflation outlook from 2.1% to 2.5%. 

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