Disillusionment on the Floor: Fed Lowers Expectations After Trump Victory

Wall Street is unsettled following Donald Trump's overwhelming election victory. Some analysts are already abandoning optimistic hopes for interest rate cuts and expect a more cautious policy from the Federal Reserve. Nomura has adjusted its forecast and now anticipates only one rate cut in 2025, followed by a further 50 basis points in 2026. This would raise the Fed's final interest rate to 3.625%, higher than the previous forecast of 3.125%. The reason for this is Trump's planned tariff measures, which could provoke inflationary pressure. This less cautious outlook coincides with the Fed's two-day meeting, which is expected to conclude with a 25 basis point rate cut. According to Nomura, Trump's economic policy plans, focusing on tariffs and tax policy, could slow growth and fuel inflation. This would likely prompt the Fed to proceed more cautiously with rate cuts to find a balance between inflation risks and weaker economic growth. Some observers on Wall Street consider it premature to assess the impact of a second Trump presidency. "It remains to be seen how far he can go with the measures proposed during the election campaign," said Scotiabank Economics. In the short term, a positive economic momentum is "conceivable," but the longer-term outlook is bleak. "In the long term, steep tariff hikes and a decline in the number of immigrants could harm economic growth," warns Scotiabank.