First Fed Meeting of the Year Tarnished by Trump’s Return

The Federal Reserve is gathering this week to hold its first meeting of 2025 under a looming shadow of a new U.S. President who is already posing challenges to the central bank with his words, decisions, and possible actions.  

Before jumping in on what’s to come, it is worth noting that the American Central Bank wrapped up 2024 with a decision to decrease the federal funds rate by 25 basis points, setting the target range at 4.25% to 4.5%.  

Fed vs. White House 

Ever since taking office, Trump has been making controversial decisions of all types regarding cryptocurrencies, trade tariffs, interest rates, and much more.  

Former President, Joe Biden, reappointed Powell instead of replacing him – a move signaling support for the Fed’s independence.  

Did you know? Powell’s term runs through May 2026, when Trump could nominate a successor.
  

Additionally, the United States’ 47^th President hinted at a possible clash with Fed policymakers when speaking at the World Economic Forum last week, bluntly stating that he will be “demanding” lower interest rates. 

• Trump said he expects to talk directly with the Fed’s Chair “at the right time”. 

• Powell and Trump may find themselves at odds because Fed officials have repeatedly indicated that interest rates are unlikely to change anytime soon, following a full percentage point cut at the end of last year.  

  
  

The Fed has been adopting a more careful posture on interest rates, signaling just two rate cuts this year and a likely halt at this week’s meeting. Officials have two economic objectives: low and steady inflation (aka price stability) and ensuring everyone in the labor market can easily find a job (aka maximum employment).  

One of the many reasons behind this cautious approach is Trump’s return to the White House and the uncertainty that comes with his new policies. Jerome Powell has also said that some Fed officials have even started to factor these policies into their economic projections for the year.  

Inflation remains stubbornly above the Fed’s 2% target, though there are signs of gradual cooling.  

• Core inflation – which excludes volatile food and energy costs – eased in December’s Consumer Price Index (CPI). 

• Housing costs – a significant component of inflation – also noted a decline. 

While the last thing Powell needs to do is to paint a target on the Fed, analysts are expecting him not to rule out a rate cut on Wednesday. Still, it’s unlikely the central bankers will deviate from their initial plan to keep rates steady for this month at least. 

If there were to be political interference in the Fed’s decision making moving forward, markets would become very nervous. 

Markets’ Focus 

The two-day meeting, ending on Wednesday, marks the beginning of what could be a very turbulent year for the central bank. Assets are reacting differently ahead of a big week for the markets.  

At time of writing: 

• Dow Jones Industrial Average futures fell 0.3%. 

• S&P 500 futures dropped 0.8%. 

• Nasdaq-100 futures declined by 1.7%. 

• Bitcoin and other crypto prices dropped over 0.3%. 

• Gold prices pared earlier losses on Monday as the U.S. dollar edged down. 

• The dollar index (DXY) was down 0.2%. 
  

As we look ahead, Wednesday’s Fed decision will be just one of many major events that could move the markets this week.  

Investors are also eyeing reports from some of the biggest names in U.S. tech – including Microsoft, Meta, Tesla, and Apple. With the ongoing influence of Trump’s administration – which continues to make headlines and heavily impact market sentiment – traders are in for a volatile week.  

The cherry on top is China’s DeepSeek, which has sparked a deep freakout in the markets as well, pulling the rug from under global companies riding the AI wave. 

• Nvidia fell nearly 13%, wiping out more than $400 billion in market value. 

• Nasdaq composite sank 2.5% in Monday morning trading. 

• Microsoft and Alphabet were both down 2%. 

• S&P 500 fell 1.5% after hitting a record just last week. 

The question remains, who will be leading the market this week: Trump or Powell?  

 TLDR 

• With signs of a strong U.S. economy, market sentiment is leaning towards unchanged rates. However, we will be closely watching for any clues on when the Fed might lower rates again.  
   

• U.S. money markets are currently pricing in just two rate cuts this year, with the first one probably coming around June. 
    

• Some watchers of the US economy are now raising the possibility that the Fed could even be forced to raise rates this year — a move that would surely invite Trump’s wrath. 
   

• What Fed officials repeatedly have made clear in the run up to this meeting is that they are increasingly concerned about signs of persistent inflation, citing that as a reason to move cautiously in 2025.  

• Market players will be looking for any comments on how the Central Bank views the outlook for inflation, the labor market and for interest rates in light of Trump's policy agenda. 
   

• China’s DeepSeek is causing a panic in the markets, with major stocks negatively affected.