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Editor’s note: This story has been updated to clarify the exact words from the September Fed statement that were in omitted in November: “The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent.”

The Federal Reserve lowered interest rates by 0.25 percentage points on Thursday, as widely anticipated by the market, bringing the federal funds rate to a target range of 4.5% to 4.75%, the lowest since February 2023.

With this decision, the Fed slowed the pace of rate cuts compared to September, when policymakers opted for a more substantial 0.5% cut to initiate the easing cycle.

The Fed’s November policy statement continued to highlight that the economy has expanded at a “solid pace,” job growth “has generally eased” and inflation “has made further progress” toward the 2% target, although it remains “somewhat elevated.”

The Personal Consumption Expenditure (PCE) inflation rate eased to 2.1% year-over-year in September 2024, marking its smallest increase since February 2021. The Fed’s preferred inflation measure, the core PCE price index, which excludes food and energy, remained steady at 2.7%.

Yet the November statement surprisingly omitted a line from September that stated: “The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent.”

The Fed reiterated a data-driven approach and highlighted the need to monitor economic implications for future policy decisions, refraining from committing to a predetermined path.

The next Federal Open Market Committee (FOMC) meeting is scheduled for December 18, 2024.

Financial markets are placing a 66% probability on another 25-basis-point cut at the year’s final meeting, as per CME FedWatch, though expectations have dropped significantly following this week’s election results.

Market attention now shifts to Fed Chair Jerome Powell‘s press conference at 2:30 p.m. ET.

Powell is expected to face questions on potential inflationary pressures from Trump’s trade tariffs and anticipated higher budget deficits and how the Fed might respond to changes in the economic and political landscape.

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Illustration of Federal Reserve Chair Jerome Powell created using artificial intelligence via MidJourney.

The Federal Reserve lowered interest rates by 0.25 percentage points on Thursday, bringing the federal funds rate to a range of 4.5% to 4.75%. Economists are weighing in on what the policy path ahead may look like. 

Michael Brown, senior research strategist at Pepperstone, sees the Fed continuing to cut rates by 25 basis points at each meeting until a neutral rate of around 3% is reached next summer. Brown noted that some of Trump’s policies, tariffs in particular, could be reflationary. 

He cautioned that by early next year the FOMC will “likely need to take policy off its current ‘autopilot’ setting, and become considerably more nimble.”

Read Next: Fed Cuts Interest Rates To Lowest Since February 2023, Sticks To Data-Driven Path

Joe Brusuelas, chief economist at RSM, expects the economy to continue growing at a steady pace next year and sees four 25-point rate cuts in 2025, one in each quarter, bringing the rate to or near 3.5%. 

Brusuelas noted that the country is “entering an era of unorthodox economic populism” as Trump retakes office. He said his rate forecast is subject to change based on potential fiscal, trade and immigration policy adjustments made by Trump during the year. 

“I don’t think inflation is a real risk in the near term,” Brusuelas said. He pointed out that any policy changes made by Trump would take time to work through the economy and said inflation should remain low through the middle and possibly the end of 2025. 

Jamie Cox, managing partner for Harris Financial Group, also sees room for the Fed to lower interest rates well into 2025 and noted that the economy remains strong. 

“Markets should not expect supersized rate cuts unless the economy turns south and doesn’t look at all likely for a while,” Cox said. 

Bill Adams, chief economist for Comerica Bank, pointed out that though the Fed followed through with its previously signaled rate cut, it was “a little less adamant about the case for further rate cuts going forward.” He highlighted Powell’s comments that the Fed is “on a path toward a more neutral stance,” but noted that “neutral” is theoretical and not a specific level. 

“To the extent that the higher inflation expectations reflected by financial markets in the last few days are realized, the Fed is likely to cut rates slower than expected before the election,” Adams said. 

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Image created using artificial intelligence via Midjourney.

President-elect Donald Trump campaigned on placing high tariffs on competing nations and cutting taxes, so what should investors expect after Trump’s second inauguration?

Trump’s Policy: Trump’s specific plans concerning tariffs and taxes are unclear and have varied greatly. The 2024 Republican Party platform calls for “baseline Tariffs on Foreign-made goods.” According to the Tax Policy Center, Trump most often promotes a 10% worldwide tariff and a 60% tax on imported Chinese goods.

Trump supports extending his 2017 Tax Cuts and Jobs Act and further reducing taxes. He has also floated the idea of abolishing the federal income tax entirely.

What’s Next: Replacing federal income tax with tariffs would be an enormous policy shift that would likely require extensive legislative action and significant changes to the U.S. tax code.

To replace federal income tax with tariffs, Congress would need to pass legislation that either drastically reduces income tax rates or repeals them altogether. This legislation would require significant support in both the House and Senate. To generate revenue, Congress would need to enact new laws imposing or increasing tariffs on a wide range of imported goods.

Given that taxes are among the most complex areas of the law, the final version of Trump’s policy would likely differ from his campaign promises.

Potential Impact: The Tax Foundation estimated the economic impact following Trump’s victory.

The think tank forecast that, from 2025 through 2034, a 10% universal tariff would raise $2 trillion, while a 20% universal tariff would raise $3.3 trillion. A 10% tariff would increase average taxes on U.S. households by $1,253, while a 20% tariff would increase taxes on U.S. households by $2,045.

These potential tariff revenues would make up only a small fraction of total U.S. individual income tax collections. Thus, a sharp reduction in federal taxes would need to be supplanted by cuts to health care, Social Security, military spending or veterans benefits to limit the federal government deficit.

Is This Even Possible? Trump’s stated positions are more popular among the public than they are among economists.

The Peterson Institute for International Economics’s Kimberly Clausing and Maurice Obstfeld wrote in June that replacing income taxes with tariffs would harm economic growth.

“For starters, it would cost jobs, ignite inflation, increase federal deficits, and cause a recession. It would also shift the tax burden away from the well-off, substantially increasing the tax burden on the poor and middle class,” the economists wrote.

“If pursued, this policy would antagonize U.S. allies and partners, provoking worldwide trade wars, damaging global economic welfare, and undermining national security. It would also likely destabilize the global financial system,” they added.

Political opponent Bernie Sanders (I-VT) has voiced disapproval of Trump’s proposals, calling them “insane economics.”

“This would be the biggest transfer of wealth in the history of this country. It would mean the billionaire class, the millionaires, no longer pay a nickel in taxes,” Sanders wrote on X.

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