JPMorgan: Trump's victory may prompt the Fed to pause its easing policy

David Kelly, chief global strategist at JPMorgan Asset Management, said on Monday that the Federal Reserve could pause its easing policy as early as December if President Trump wins this week's US election. He noted that Trump's expansionary fiscal policy plans could push up inflation and prevent further rate cuts. "If the Republicans win handily under Trump, we may see more expansionary fiscal policy, which could lead to a trade war, a larger fiscal deficit, and higher rates," Kelly said in an interview. Trump's proposed plan for universal tariffs, including up to 60% tariffs on Chinese imports, and his strict immigration controls have been widely seen as inflationary. The policy plans require significant federal spending, further exacerbating the federal budget deficit. Kelly believes the impact of these policies could prompt the Fed to pause its rate cut process. "I think the Fed will be watching the fiscal policy closely. If fiscal policy leads to higher deficits, more fiscal stimulus, and higher inflation, the Fed may think that if fiscal policy is going to be more expansionary, they need to slow down the pace of easing to offset that," he said in an interview. On the other hand, Kelly believes the economy could follow a soft landing path if Vice President Harris wins. "If the government is divided, like with Harris as president, I think the economy will continue a slow and steady soft landing, though it may be a bit boring," he said. In this scenario, Kelly expects the Fed to stick to its current easing path. "I think they will follow the dot plot until the economy forces them to change course," he said, referring to the potential risk of inflation rising again. The Fed's dot plot shows its members' forecasts for the path of interest rates over the next few years. The dot plot released in September showed expectations for another 50 basis points of easing by the end of the year and further easing in 2025. While the Fed is independent, Kelly noted that political factors could still influence it because political developments can affect the economy. "When the Fed understands the direction of fiscal policy, I think it affects their decision. They are not going to try to guide the federal government on how it should act, but they will react to the government's policies or what it may do," he said. Therefore, he expects the Fed is almost certain to cut rates by 25 basis points at its next meeting on November 7, even though the election results are not yet known.