Evelyn Reynolds

Fed Chair Jerome Powell dodged question after question at his Thursday news conference from a press corps eager to elicit the central bank leader’s thoughts about President-elect Donald Trump.
Trump took a dim view of the Powell Fed during his first term in office, although he nominated the Fed chair in 2017. Powell largely shrugged off the criticism then.
How the Trump-Powell relationship unfolds this time is unclear, but it is likely to add another wrinkle into a delicate balance the Fed is trying to navigate with monetary policy.

Federal Reserve Board Federal Reserve Chairman Jerome Powell speaks during a news conference following a Federal Open Market Committee meeting in Washington on November 07, 2024 in Washington, DC. 
Kent Nishimura | Getty Images

Federal Reserve Chair Jerome Powell dodged question after question at his Thursday news conference from a press corps eager to elicit the central bank leader’s thoughts about President-elect Donald Trump.
At some point, though, Fed policymakers, economists and analysts will need to account for what likely will be an ambitious economic — not to mention political — agenda from the firebrand Republican.

Trump took a dim view of the Powell Fed during his first term in office, calling policymakers “boneheads” and once compared Powell to a golfer who couldn’t putt. Powell, who was nominated by Trump in November 2017 and took office the following February, largely shrugged off the criticism then, and he again deflected Thursday.
“I’m not going to get into any of the political things here today, but thank you,” Powell said during the news conference after being asked at least half a dozen times about the Trump victory and its ramifications. Powell cut the session short around 3:12 p.m. ET, a few minutes earlier than normal following the round of politics-heavy questioning.
However, dealing with the ramifications of a Trump presidency will be almost unavoidable for the Fed leader.
Among the expected policy initiatives on the way are steep tax cuts, expansionary government spending and aggressive tariffs aimed at leveling a global playing field. Trump also has threatened mass deportations for undocumented immigrants, something that could alter the labor market landscape.
How the Trump-Powell relationship unfolds this time is unclear — Powell’s term as chair is up in February 2026 — but it is likely to add another wrinkle into a delicate balance the Fed is trying to navigate with monetary policy.

Differences in policies, politics

“They’re going to get themselves in a bind here, because the communication is going to get much more difficult, and there’s going to be a new administration coming in with its own way of how to view policy,” said Joseph LaVorgna, chief economist at SMBC Nikko Securities.
“It’s not clear to me that the Fed is going to have the same type of approach of what the [new] administration is doing, and that I think could set up a lot more tension,” he added.
LaVorgna has a unique perspective on the situation, having served as chief economist for the National Economic Council under Trump. He could be headed back to Washington in 2025 for another stint in the White House.

Like Trump, LaVorgna has been a Fed critic, though for a seemingly opposite reason as he thinks the central bank made a mistake Thursday in lowering its benchmark interest rate by a quarter percentage point. LaVorgna instead advocated the Fed hold off until it can get a clearer picture of a muddied economic landscape with uncertainty over the direction of inflation and unemployment.
Trump historically has favored lower rates, though that too could change if the Fed cuts and inflation rises.
“What if, going forward, the outlook becomes more mixed?” Lavorgna said. “To me, it was obvious they shouldn’t be cutting. And then President Trump I think [could] properly ask, ‘Why are you cutting when things [with inflation] actually don’t look as solid as they might have before?'”
Many economists think Trump’s policies could help stoke inflation at a time when signs are showing that, at least on a relative basis, the pace of price increases is easing back toward the Fed’s 2% target. Some of those economists already this week started marking up their inflation estimates and cutting their outlook for growth, despite a high level of uncertainty about what the Trump agenda will actually entail.
Should those forecasts come true and inflation perk up, the Fed will have no choice but to respond, possibly by slowing the pace of rate cuts or stopping altogether.

Uncertainty ahead

While Powell avoided Trump talk, Wall Street commentary following the Fed’s decision Thursday to lower rates by another quarter percentage point addressed the potential fallout.
“The upcoming year in Federal Reserve policy is going to be a remarkably interesting twelve months indeed,” wrote Joseph Brusuelas, chief economist at RSM.
In a forecast that is close to the Wall Street consensus as well as the fed funds futures market, Brusuelas expects the Fed to lop another full percentage point off baseline rates in 2025. But that outlook could be subject to change.
“This forecast is based on the economic status quo holding, all else being equal,” Brusuelas said. “Because we are entering an era of unorthodox economic populism, that forecast is subject to changes in both trade and immigration policy that could alter the path of employment, the unemployment rate and wage pressures that could cause an increase in the price level.”
While some economists worry that Trump’s policies could cause major fallout, others are taking a more measured approach given the incoming president’s penchant for saber-rattling.
Despite implementing heavy tariffs that economists also feared would raise prices dramatically, inflation never topped 3% at any point during Trump’s term and in fact barely cracked 2% as judged by the Fed’s preferred indicator. Moreover, President Joe Biden kept Trump’s tariffs largely in place and even added some new ones on electric cars and other items.
Ultimately, the next round of tariffs could add about 0.3% to inflation, according to Nationwide’s chief economist, Kathy Bostjancic.
“We anticipate this should provide reason for the Fed to slow the rate of policy easing a bit, but not stop it,” she said. “Our call for substantive rate cuts over the next year would maintain the easing in financial market conditions that helps lower borrowing costs for consumers and businesses and continues to support the labor market and ongoing expansion.”
Still, the prospect of the Fed asserting its independence and moving policy in either direction, irrespective of Trump’s wishes, sets up a potential clash.
Trump previously has asserted that the president at least should be consulted on monetary policy. Fed officials, though, insist on independence from fiscal and political considerations, which could get tougher in the days ahead.
“The easy cuts have been made, and maybe December won’t be too contentious either,” said Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management. “Thereafter, I imagine the Fed is asking the same questions as investors – to what extent and when will the incoming Trump administration implement its campaign policy proposals?”

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President-elect Donald Trump likely will return to cornerstones of his previous economic platform such as tariffs, lower taxes and sanctions, former Treasury Secretary Steven Mnuchin said.
Mnuchin said he likely would not take an official role in the Trump administration but would “be happy to serve from the outside.”

President-elect Donald Trump likely will return to cornerstones of his previous economic platform such as tariffs, lower taxes and sanctions when he assumes office in January, his former Treasury secretary said Thursday.
Steven Mnuchin, who held the post throughout Trump’s first term from 2017-21, told CNBC that he sees those items as critical to the Republican’s agenda.

Tax cuts are “a signature part of his program,” Mnuchin said in a “Squawk Box” interview. “I think that should be easy to pass in Congress, particularly if the Republicans control the House as well, which it looks like it will be.”
Also on the agenda would be tariffs, which Trump implemented on multiple items during his first term and promised to do again.
“I think that tariffs do need to be used to get counterparties back to the table, especially China, which is not living up to all of the agreements they made,” Mnuchin said.
Finally, he indicated that nations such as Iran and Russia can expect to see sanctions again. The Trump administration levied measures against petroleum producers in Iran in 2019 because they were owned by the Revolutionary Guard.
“The sanctions on Iran and Russia were very impactful. In the case of Iran, they’re now selling millions of barrels of oil, which needs to be stopped,” Mnuchin said.

Outside of those issues, Mnuchin, who said he likely would not take an official role in the Trump administration but would “be happy to serve from the outside,” expects Trump to take on other issues such as steep deficit spending.
“I think he’s in a position now, particularly with this overwhelming result, to take on difficult issues, and I think that’s got to be part of government spending,” he said.
Mnuchin is the founder of Liberty Strategic Capital.

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Donald Trump’s election victory marks a historic return to the White House – an extraordinary political comeback that is likely to have seismic ramifications for the global economy.
The former president’s litany of campaign pledges include steep tariffs, tax cuts, deregulation and a push to withdraw from key global agreements.
Oxford Economics’s Ben May said the direct impact of Trump 2.0 on global growth could be limited in the near term, “but masks major implications for trade and the composition of growth, and for financial markets.”

A worker is making textile export orders at a production workshop of a textile enterprise in Binzhou, China, on July 8, 2024.
Nurphoto | Nurphoto | Getty Images

Donald Trump’s election victory over Vice President Kamala Harris marks a historic return to the White House — an extraordinary political comeback that is likely to have seismic ramifications for the global economy.
Speaking to his supporters in Florida early Wednesday, Trump said an “unprecedented and powerful mandate” would usher in “the golden age of America.”

The former president’s litany of campaign pledges include steep tariffs, tax cuts, deregulation and a push to withdraw from key global agreements.
Analysts say it is hard to pin down the extent to which Trump will seek to implement these measures in his second four-year term, but the consequences of any will have clear repercussions across the globe.
Lizzy Galbraith, political economist at asset manager Abrdn, said it remains to be seen exactly what style of presidency investors can expect when Trump returns to the White House.
“Congress has a really big part to play in this,” Galbraith told CNBC’s “Squawk Box Europe” on Thursday.

“If Trump does have unified control of Congress, as is looking very likely and is what we expect to happen over the next few weeks and days, then he does have greater latitude to implement his tax-cutting agenda, his deregulatory agenda, for example, but we are also likely to see elements of his trade policy sitting alongside that.”

On tariffs, Galbraith said there were currently two schools of thought. Either Trump seeks to use them as a bargaining tool to gain concessions from other parties — or he delivers on his promise and implements them much more broadly.

Trump’s favorite word

Trump has previously described “tariff” as his favorite word, calling it “the most beautiful word in the dictionary.”
In an effort to raise revenues, Trump has suggested he could impose a blanket 20% tariff on all goods imported into the U.S., with a tariff of up to 60% for Chinese products and one as high as 2,000% on vehicles built in Mexico.
For the European Union, meanwhile, Trump has said the 27-nation bloc will pay a “big price” for not buying enough American exports.

Former US President Donald Trump arrives during a “Get Out The Vote” rally in Greensboro, North Carolina, US, on Saturday, March 2, 2024.
Bloomberg | Bloomberg | Getty Images

“Now, I think it is worth pointing out that we do think that in any situation which Trump is using tariffs quite often, his principal focus is going to be on China. And we don’t see Trump’s secondary tariff pledge — that baseline tariff, which would hurt European companies — as being all that feasible,” Galbraith said.
“So, it’s not necessarily our base case that you see something like a baseline tariff applied that would really hurt European goods although there is still a distinct possibility there that specific European products could be affected,” she added.
Analysts have warned that Trump’s plan to impose universal tariffs are highly likely to raise prices for consumers and slow spending.

Europe

Ben May, director of global macro research at Oxford Economics, said the direct impact of Trump 2.0 on economic growth is likely to be limited in the near term, “but masks major implications for trade and the composition of growth, and for financial markets.”
For instance, May said that in a scenario in which the more radical aspects of Trump’s policy agenda are adopted, particularly on tariffs, the impact across the globe will be “very sizable.”
“A key unknown is whether a clean sweep raises the risk that a Trump administration will push through more extreme policy measures, such as larger, less-targeted tariffs,” May said in a research note.
“Uncertainty over Trump’s stance on the conflicts in Ukraine and the Middle East also adds to the risk of greater instability in both regions, which could take a toll on regional, and even global, growth,” he added.

The prospect of a second Trump presidency had long been viewed as negative for Europe and the European Union more broadly.
Yet, analysts at Signum Global Advisors said in a research note on Wednesday that “the magnitude of that truth remains underappreciated.”
Indeed, they argued that several factors mean the EU is likely to be “the biggest loser of a second Trump era,” citing trade tensions, an ongoing frustration with key European policy decisions and Trump’s likely desire to double down on America’s advantage at attracting capital relocation.

Asia

Analysts at Macquarie Group said Thursday that, at face value, Trump’s election victory is “bad news for Asia,” particularly China, but the region is “more prepared” than in 2016, when he first moved into the White House.

A cargo ship is sailing towards the docking of a foreign trade container terminal in Qingdao Port, Shandong province, in Qingdao, China, on June 7, 2024.
Costfoto | Nurphoto | Getty Images

“A key tenet of Trump’s campaign was higher tariffs. While well telegraphed, the headwinds that are likely to sweep across Asia, particularly China, should spike volatility and compress multiples as uncertainty prevails,” analyst at Macquarie Group said in a research note.
“A counter-balance to this is a likely acceleration in China stimulus measures,” they added. “The Chinese government has already outlined its ambitions to support economic growth at the 5% level and address property market woes to support domestic consumer confidence.”
Mitchell Reiss, an American diplomat and distinguished fellow at the Royal United Services Institute (RUSI) think tank, said there are likely to be some differences to the Trump playbook this time round.

“I think that President-elect Trump has said that he would like to increase tariffs on China again until the playing field is level, in his view,” Reiss told CNBC’s “Squawk Box Europe” on Thursday.
“What was interesting the last time when Trump won was the number of China hawks that staffed his administration. This was a very tough administration in terms of personnel and in terms of their view of how they saw China as an adversary, expansionist in the South China Sea and contrary to American values and friends and allies around the world,” he continued.
“So, I don’t think that that’s going to change. I think that might be mitigated a bit by the economic interaction that we have with China, but I think that it is going to be a complicated relationship going forward.” More