Donald Trump’s imminent return to the White House and uncertainty about his policy proposals has begun weighing on the US Federal Reserve, raising concerns of a reckoning between the central bank and the president-elect.

Fed chair Jerome Powell acknowledged on Wednesday that Trump’s economic platform, which includes the threat of major tariff hikes, the extension of tax cuts, and mass deportation, had been a consideration when members of the rate-setting committee met to consider the number of interest rate cuts they expect next year.

“Some did identify policy uncertainty as one of the reasons for their writing down more uncertainty around inflation,” Powell said after the Fed announced it was cutting rates by a quarter point and signaled just two cuts in 2025.

“We don’t know what’ll be tariffed from what countries, for how long, and what size,” he said. “We don’t know whether there will be retaliatory tariffs, we don’t know what the transmission of any of that will be into consumer prices.”

Previously, Powell had refused to comment on how the Fed was thinking about the potential impact of the next administration’s economic policies.

Trump has continued to insist that, “properly used,” tariffs would be positive for the US economy.

“Our country right now loses to everybody,” he told reporters at his Florida residence earlier this week. “Tariffs will make our country rich.”

Given the uncertainty over Trump’s plans, the decision by many policymakers to pencil so few cuts may have been a signal that they are willing to keep rates higher if the new administration puts forward policies that are inflationary, Steve Englander, head of G10 FX Research at Standard Chartered bank, told AFP.

“There are reasons not to be that pessimistic, and yet they chose to be that pessimistic,” he said. “So it’s hard to sort of avoid the signal that maybe they wanted to send a message.”

The US central bank has a dual mandate from Congress to act independently to tackle inflation and unemployment. But it must still consider how the economy could be affected by government policies.

Fraught relationship

Trump has had a long and often fraught relationship with Powell, whom he first appointed to lead the independent US central bank, frequently criticizing him during his first term for not cutting interest rates quickly enough.

The Republican has also said he has “better instincts” on the economy than many Fed governors, and argued that the US president should have “at least” a say in setting interest rates — something he cannot currently do.

“We haven’t explicitly written about any sort of disagreement between the White House and the Fed,” Bank of America senior US economist Aditya Bhave told AFP. “But you could easily end up in a world where they want different things.”

However, he added, there is still such “huge uncertainty” about which policies will be enacted that it is difficult to predict what the impact will be.

In Trump’s orbit, there is also strong disagreement that some of the proposed policies are actually inflationary.

Fed officials “are assuming that the Trump agenda will cause inflation despite no evidence,” said Stephen Moore, an economic adviser to the president-elect and an economist at the conservative Heritage Foundation.

“We had almost no inflation in Trump first term,” he told AFP in a message.

“And it’s absurd to think tax cuts cause inflation,” he added, referring to the incoming administration’s plans to extend tax cuts which are due to expire at the end of next year.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)