What We Expect From The FOMC

2025-01-27 10:45:00 ET

Summary

• We expect the FOMC to pause rate hikes, as the committee believes that the Trump administration’s policies will be inflationary due to tariffs, immigration and tax cuts.
• We, however, strongly disagree with the Fed’s view, as tariffs are deflationary in the long run.
• The combination of slowing inflation and decelerating growth should clear the way for 3-4 Fed rate cuts this year, but we do not expect the Fed to signal these cuts at this month’s meeting.

We expect the FOMC to pause rate hikes, as the committee believes that the Trump administration’s policies will be inflationary due to tariffs, immigration and tax cuts. We, however, strongly disagree with the Fed’s view, as tariffs are deflationary in the long run due to a stronger dollar offsetting the tariff increases and revenue from the tariffs reducing the deficit and increasing capital available for investment. Deporting criminals is not inflationary, and even if some hard-working illegals are deported, it is unlikely to significantly increase inflation, as there is a developing surplus of low-wage workers due to minimum wage hikes and associated automation....

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