Investing.com – The rate of the Federal Reserve decided by 25 basis points is accompanied by high expectations of inflation, which Macquarie analysts say in a hawkish tone is influenced not only by economic data but also by possible policy changes under the administration of Donald Trump.
“Policymakers must collectively outline the elements of Trump's agenda before it takes effect, even if they won't agree to it,” the analysts wrote.
Jerome Powell referred to the decision as a “close call,” reflecting internal uncertainty about the dangers of inflation. The Fed's Summary of Economic Projections (SEP) noted a 0.4% and 0.3% jump in headline and core inflation by 2025, respectively.
Observers speculate that the Fed is considering the policy agenda driven by Trump, despite Powell's reluctance to directly link monetary policy to future policy conditions.
But Trump's tax policies are leading the world's central banks in the opposite direction and major foreign banks are expected to respond in an alarming way to counter the pressure caused by US trade actions.
“It has kept the BoJ of Japan away from the prospect of a policy hike, either today or in January. Even the BoE sees the wisdom of staying open to cuts in Bank Tax due to Trump's tariffs. “Foreign CBs are already 'fighting' Trump's tax cuts,” the analyst added.
The opposite policies drove the US dollar higher, tightening restrictions on US exporters. Meanwhile, foreign central banks are seen as protecting competition by keeping weak currencies.
“If there's a theme here, it's that while Trump's import tax agenda is making the Fed 'hawkish', it's affecting other CBs in the opposite direction – to dovishness.”