Trump's election has limited short-term impact on the Fed

Some analysts pointed out that Trump's election will not immediately change the Federal Reserve's monetary policy, but if the Republican Party controls the House and Senate, it may adjust economic forecasts and basic assumptions at the December policy meeting.For example, after Trump was elected in 2016, the Federal Reserve held a heated discussion on his tax reform policy and took it into consideration in subsequent interest rate adjustments.The market has now reflected the possible inflation risks after Trump's election, and it is expected that the pace of the Federal Reserve's interest rate cut will be limited.

Uncertainty about job market prospects increases

As the unemployment rate rose to 4.3%, concerns about the health of the job market remained unabated.Although the Federal Reserve has started a rate cut cycle in September, considering the potential impact of external factors such as hurricanes, strikes and elections, there is still limited room for future adjustment of interest rate policy.Further tariff policies that Trump may introduce after his election or increase job market pressure may force the Fed to be more cautious.

Anti-inflation challenges remain

The Federal Reserve's preferred inflation indicator, the Personal Consumption Expenditure (PCE) Price Index, shows that inflation has gradually slowed down this year, but there is still a gap between the 2% target.If Trump's tax cuts and deregulation policies cause the economy to overheat, some Fed officials will slow down interest rates to control inflationary pressures.This policy move will increase the Fed's balancing challenge between maintaining economic stability and suppressing inflation.

Uncertainty about neutral interest rates makes the decision to cut interest rates more difficult

The federal funds rate currently remains in the range of 4.75% to 5%, higher than the neutral level of 4% before the 2008 financial crisis.Federal Reserve Chairman Powell said at a recent press conference that although there is still uncertainty about neutral interest rates, he does not expect to return to the era of ultra-low interest rates.If Trump's economic policies succeed in promoting economic growth, the Federal Reserve may slow down interest rates to prevent interest rates from falling excessively below neutral levels.

The Fed's future policies will inevitably be under pressure

Trump's trade protection policies may trigger higher import costs and inflationary pressures, which may further limit the Federal Reserve's interest rate cut.The market currently expects the policy terminal interest rate to be between 3.5% and 4% in 2025, and it is expected to cut interest rates by 50 basis points before the end of the year.

Trump's trade war policy triggered pressure on the European economy. The market expected that the ECB and the BOE might follow suit to cut interest rates. On the 6th, the euro and the pound fell against the US dollar. Investors were betting that the exchange rate of the euro against the US dollar would depreciate to parity.