FOMC Preview: Fed Hold to Increase Pressure from Trump? 

Once again, we are back to the FOMC meeting and the pressure it puts on the markets. However, this time is different, as Trump now leads the White House, and the ongoing conflict with the Fed continues. Let’s dive a bit deeper into the issue. 

What is FOMC? 

The Federal Open Market Committee (FOMC) is a committee within the Federal Reserve System (the Fed) that is charged under United States law with overseeing the nation’s open market operations. 

What is the Fed? 

The Federal Reserve, also referred to as the Fed, is the central banking system of the United States and is responsible for guiding 

•  U.S. monetary policy. 

•  Economic policy announcements  

•  Setting interest rates and reserve requirements.  

Is the FOMC the Same as the Fed?

No, the FOMC and the Fed are not the same. The FOMC, or Federal Open Market Committee, is a division within the Federal Reserve responsible for open market operations. Meanwhile, the Fed’s Board of Governors sets the discount rate and reserve requirements.    

Importance of Fed decision: 

Public statements by the Federal Reserve are among the most highly anticipated trading events of the year since implications for financial markets are so widespread. 

Fed and Traders: 

The Fed and its governors are closely watched by traders, since even the smallest changes in monetary policy and federal funds rates can create large market-moving events. 

How to Trade the Fed’s Decision? 

• The Fed provides crucial data that impacts the markets, including interest rate decisions and economic outlooks. 

• Traders should analyze post-meeting press releases, which often hint at future policy changes. 

• Fed communications, including speeches and public appearances by FOMC members, can move the markets between meetings. 

• Trading before and after FOMC announcements requires careful insight and preparation but presents significant opportunities throughout the year. 

By staying informed on Fed decisions and understanding their impact on the markets, traders can better position themselves for opportunities and risks ahead. 

What to expect today? 

The January 2025 FOMC meeting concludes on Thursday, January 28, at 11:00 AM UAE time, followed by Powell’s press conference at 11:30 AM UAE time. 

• Recent shifts in interest rate futures pricing now indicate just one expected Fed rate cut in 2025, down from earlier expectations of three. 

• The Fed is expected to hold its benchmark rate steady on Wednesday at its current range between 4.25% to 4.5%, according to more than 9 in 10 economists polled by financial data site FactSet.  

• Most economists also predict the Fed will hold off on cutting at its March 19 meeting, which means the next rate cut might not occur until the central bank’s May 7 meeting, FactSet data shows. 

What to expect from the Fed in 2025? 

• Despite inflation concerns, 43 out of 49 economists believe a Fed rate hike is unlikely in 2025. 

• Some experts suggest rate hikes could return in 2026, depending on inflation and economic growth trends. 

• The FOMC may take a cautious approach to avoid entrenched inflation risks. 

• Recent economic reports show strong hiring and progress on inflation, leading policymakers to signal a slower pace of rate cuts in 2025. 

• Traders are pricing in a 1-in-4 chance of another 25bps rate cut in March, but many expect a pause until mid-2025. 

Trump and The Fed: 

• Donald Trump has publicly stated that he will demand lower interest rates. 

• Last Thursday, he said, “I know interest rates much better than they do.” 

• While in office previously, Trump threatened to fire Fed Chair Jerome Powell, but has recently eased off such threats. 

• Powell’s term as Fed Chair ends in May 2026, after which Trump could appoint a replacement. 

• Trump’s recent remarks indicate he may frequently criticize the Fed’s policies in public, despite past presidents traditionally taking a hands-off approach to the central bank. 

Economic Considerations for the Fed: 

• The Fed must balance keeping borrowing costs high enough to curb inflation while avoiding rates that are too high, which could trigger a recession. 

• Policymakers remain cautious about the long-term economic impact of both inflation and interest rate adjustments. 

• The upcoming months could be turbulent, with political and economic pressures shaping the Fed’s decisions. 

News that might influence future fed decisions:

Inflation concerns persist, with projections showing inflation above the 2% target until at least 2027. 

• Strong hiring reports and steady economic growth suggest fewer rate cuts may be necessary. 

• The labor market remains resilient, with December job gains reversing the previous slowdown. 

Growing concerns over tariffs, immigration policies, and fiscal decisions may reignite inflationary pressures.  

• Tariffs, immigration policies, and fiscal policies under Trump’s new administration could increase inflationary pressures. 

• 40 out of 49 economists believe inflation is more likely to rise than decline in 2025. 

The Federal Reserve’s decisions have a significant impact on market trends. Remember to stay informed and always prioritize your risk tolerance before making any trading decisions.