After making progress on inflation and having strong economic growth for two years, the Federal Reserve is getting ready to meet soon. They have to consider new policies from President Trump and rising borrowing costs, which could affect the economy. Inflation has been slowly getting closer to the Fed’s goal of 2 percent, and instead of facing a recession, the unemployment rate dropped to as low as 3.4 percent before ending 2024 at 4.1 percent. This is close to what many experts believe is the healthiest level for the economy.
In December, companies created over 250,000 jobs, showing that the economy is continuing to grow. However, new challenges may arise soon, such as changes in U.S. trade and immigration policies, which could lead to higher prices for goods and services. Also, bond investors are increasing interest rates, making loans more expensive for things like homes.
The Federal Reserve is expected to keep the benchmark interest rate steady at 4.25 to 4.50 percent at their next meeting on January 28-29, especially after they decreased it by a full percentage point since September. Fed Chair Jerome Powell will discuss the outlook for the economy after the meeting.
When President Trump was sworn in for a second term, he started making some changes like border security and energy policies but didn’t impose new import tariffs right away, which helped the dollar drop and stock markets rally. However, he did mention plans to impose duties on imports from Canada and Mexico soon, which could raise prices if they go through.
Some Fed officials are already thinking about how Trump’s policies might affect the economy. For example, if fewer undocumented workers are around because of deportations, it could lead to higher wages and prices, especially in industries that rely on these workers.
While bond yields are increasing, raising concerns about the economy and government borrowing, Fed officials still think there’s no urgent problem. They are keeping their options open about how to handle rising long-term yields, which could eventually affect the economy’s growth.
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