US follows Bank of England and cuts charges regardless of fears of Trump inflation

The US Federal Reserve last night went ahead with a quarter percentage point interest rate cut despite fears that Donald Trump’s presidency could push up inflation. 

Fed chief Jerome Powell brushed off questions about the impact of the president-elect’s plans, saying: ‘We don’t guess, we don’t speculate, and we don’t assume.’ 

And Powell also batted away fears that Mr Trump could try to force him out. Asked whether he would resign should Mr Trump ask him to, he said: ‘No.’ 

The move came hours after the Bank of England also cut rates by a quarter point. It was announced a day after Trump won a decisive election victory over Kamala Harris which has boosted stock markets but raised fears that inflation could shoot back up.

The president-elect’s threat to impose 10 per cent tariffs on imports from across the world and a 60 per cent levy on Chinese goods would create renewed price pressures. 

That has prompted financial markets to reduce bets on how quickly the Fed will cut rates. 

Last night’s rate cut follows a jumbo halfpoint reduction – the first in four years – in September. Rates had been increased sharply by central banks around the world as they fought to bring down inflation. 

Now that inflation is on the wane they are starting to cut them. In a statement announcing last night’s move, the Fed said inflation had fallen closer to its 2 per cent target but ‘remains somewhat elevated’. 

Trump’s election has raised fears not only of tariff increases but that, as president, Trump could interfere in the Fed’s policy decisions. 

During his previous term in the White House he publicly criticised Powell as the Fed raised rates. The latest statement made no mention of Trump’s election victory. 

And Powell said it would have no impact on its decisions in the short term but that, like any administration, it may adopt policies that do so – though details are not yet known. He said nothing to rule out an expected further rate cut next month. 

Samuel Tombs, chief US economist at Pantheon Macroeconomics, said: ‘At this early stage, the likelihood, scale and timing of Trump’s proposed tariffs on imports and tax cuts are too uncertain for the Fed to pass judgment, even though they pose material upside risks to the inflation outlook.

‘With the Fed’s independence at risk of being undermined during Trump’s term, Powell and other Fed officials surely will keep as quiet as possible for as long as they can.’ 

Ryan Detrick, chief market strategist at Carson Group, said: ‘The Fed didn’t rock the boat. The big question now is will they cut again in December? Our best guess is they do, as inflation continues to improve.’