- President Donald Trump has already made clear that he wants the Federal Reserve to cut rates immediately, but Wall Street doesn’t see that happening any time soon. In fact, more analysts are warning that rate hikes are likely.
Just days after his inauguration, President Donald Trump began applying pressure on the Federal Reserve to cut rates. But Wall Street sees that as unlikely and is even viewing rate hikes as a growing possibility.
On Thursday, Trump told the World Economic Forum in Davos, Switzerland, that he will demand that interest rates drop immediately, and later added that he knows rates much better “than the one who’s primarily in charge of making that decision,” alluding to Fed Chairman Jerome Powell.
The Fed meets this coming week, with a policy announcement due Wednesday afternoon. Wall Street expects rates to remain at 4.25%-4.5% after a 100 basis points of cuts last year. And that may be a low as it goes as the US economy remains strong while expected tariffs, tax cuts, and immigration curbs push upward on inflation.
“We don’t believe the Fed will cut rates in 2025 — we don’t even believe the Fed is done,” wrote Thanos Papasavvas, founder and chief investment officer at ABP Invest, in a Financial Times op-ed on Tuesday. “Instead, we expect the resilient US economy and Trump’s polices to push inflationary expectations higher and force Fed chair Jay Powell to increase rates from September onwards.”
He also cited the Fed’s desire to maintain its inflation-fighting credibility after it misjudged the earlier run-up in prices as transitory.
As a result, the Fed will be “super orthodox and choose inflation over employment,” if push comes to shove, Papasavvas predicted.
Dan Ivascyn, chief investment officer at bond giant Pimco, told the FT separately on Wednesday that the central bank is poised to keep rates unchanged “for the foreseeable future” as Wall Street waits for more economic data and clarity on Trump’s policies.
He added that while rate hikes are not in his baseline scenario, they are “certainly possible” as recent surveys point to higher inflation expectations among consumers.
“We’re not out of the woods yet from an inflation perspective,” he told the FT.
That comes after Bank of America said earlier this month that the Fed’s rate-cutting cycle is already over, and that the “conversation should move to hikes.”
That could be in play if the core personal consumption expenditure inflation reading exceeds a 3% annual rate and long-run inflation expectations start to move higher, BofA added.
In a separate note this month, Apollo Chief Economist Torsten Sløk maintained his view that there’s 40% chance the Fed will raise rates this year, saying that the economy is re-accelerating.
“The bottom line is that momentum in the economy is strong, and the narrative that monetary policy is restrictive is wrong,” he said.