Fed's Rate Pause Weighs Trump Agenda's Growth vs. Inflation Risks

The Federal Reserve is signaling a potential pause in interest rate cuts amid persistent inflation concerns, with key officials and market strategists highlighting the delicate balance between economic resilience and policy caution. JPMorgan Asset Management's Karen Ward, a prominent voice in the market, stated that after a December rate cut, the Fed may hold its fire in 2025 to assess the economic impact of President-elect Donald Trump's policies. "The Fed will cut rates once more and then possibly remain inactive in 2025," Ward said, noting the uncertainty around whether Trump's agenda will drive growth or inflation, according to a JPMorgan strategist report. This view contrasts with the broader Wall Street consensus, which generally anticipates continued rate reductions next year.

Federal Reserve Chair Jerome Powell reinforced this cautious stance in a recent speech, emphasizing that the U.S. economy's "very strong" performance removes urgency for rate cuts. "The economy has not conveyed any signals indicating a need to rush to lower rates," Powell said, adding that inflation indicators must remain within acceptable ranges before further action, according to the same JPMorgan strategist report. His remarks have tempered market expectations, with the CME FedWatch Tool now showing a roughly 58% probability of a 25-basis-point cut in December.

Regional Fed leaders are also aligning with a more hawkish approach. Atlanta Fed President Raphael Bostic, who recently announced his retirement in February, reiterated that inflation remains the "clearer and more urgent risk" to the Fed's dual mandate of price stability and employment, according to a Reuters report. Bostic, who will no longer vote on rate decisions, argued that labor market signals are "ambiguous" and insufficient to justify aggressive policy shifts. Similarly, New York Fed President John Williams highlighted the need to monitor reserve levels as the central bank transitions from quantitative tightening to a potential resumption of asset purchases. "It will not be long before we reach ample reserves," Williams said, signaling a measured approach to balance sheet management, according to a Seeking Alpha analysis.

The Fed's deliberations are occurring against a backdrop of political and economic uncertainty. Trump's proposed tariff policies have raised concerns about inflationary pressures and potential clashes with monetary policy. JPMorgan's Chief Global Market Strategist David Kelly warned that "a conflict between the Fed and the Trump administration could ultimately occur," as tariffs might disrupt global supply chains and fuel domestic inflation, according to the JPMorgan strategist report. Meanwhile, Bostic's retirement—and the broader reshuffling of Fed leadership under Trump's influence—has added to questions about the central bank's independence.

Market implications are already emerging. QCP analysts noted that Fed rate cuts and resilient corporate earnings could prop up risk assets and Bitcoin through year-end, despite short-term volatility from government shutdown risks and soft economic data, according to a LookonChain analysis. In the crypto space, Ethereum whales have capitalized on recent price dips, with institutional buyers accumulating large positions as the market stabilizes, according to a Yahoo Finance article.

The Fed's next move will hinge on whether inflation cools sufficiently to justify further easing. For now, officials are prioritizing stability over speed, a strategy that could shape economic and market trajectories into 2026.