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Investing.com - Asset markets may be so focused on President Donald Trump's policies that risks presented by the Federal Reserve's upcoming policy meeting this week may be underestimated, according to analysts at Standard Chartered (OTC:SCBFF).
The Fed is widely tipped to keep borrowing costs steady at the conclusion of its latest two-day gathering on Wednesday, following a string of reductions late last year that left the all-important benchmark rate at a range of 4.25% to 4.50%.
But investors will be keen for officials to give any sense of when they might resume cutting rates. The Fed’s easing cycle has come after a sequence of hikes designed to corral red-hot inflation, but price growth remains above the Fed’s 2% target.
Money markets are pricing in around 40 basis points, or roughly two more cuts, by the end of December, according to LSEG data cited by Reuters.
Yet a wild card faces the Fed in the form of President Trump. Policymakers have already flagged uncertainty stemming from his plans to impose sweeping tariffs on friends and adversaries alike, while Trump himself has called on the Fed to slash rates.
Some economists have argued that Trump's tariffs policies could revive price pressures, and subsequently persuade the Fed to roll out possible equity-friendly interest rate cuts at a slower pace this year. Since taking office for the second time last week, Trump has yet to introduce the widespread tariffs, although he has threatened to place levies on several US trading partners.
Despite Trump's stance clouding the broader outlook for Fed monetary policy, the analysts at Standard Chartered noted that recent comments from some members of the rate-setting Federal Open Market Committee "have been more hawkish than dovish".
"Even a small opening of the door" to the risk that the Fed could choose to either cut or lift interest rates in the future "would be taken as very hawkish by the market", the analysts said.
Fed officials may also "desire to manifest" the central bank's independence from Trump's demands at the start of his term, the analysts added. Should such a stance be taken by the Fed, they predicted that Trump might respond, "even if such comments increase market uncertainty".
Investors could initially react to this type of exchange, but "the impact may diminish over time if there is no follow-through", they said.
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