Federal Reserve Chair Powell has been very steadfast and consistent in his communication regarding elections and fiscal policy.

He said at a press conference two days after the election, "Elections will not affect our policy decisions." and "We do not comment on fiscal policy." To ensure this, he also stated, "I will not talk about anything directly or indirectly related to the election."

However, once Trump is re-elected, Powell may find it difficult to avoid considering and commenting on fiscal policy and its impact on the economy. While any agenda of the incoming president may have some impact on the economy, the unknowns associated with Trump's plans are particularly unique.

Will he really expel illegal immigrants on a large scale? To what extent are tariffs bargaining chips, and how many will actually take effect, and what impact will these have on global trade? Are tax cuts just prolonging, or will there be new, larger cuts?

Then there is the current economic backdrop. In short, the U.S. economy is solid. Even without proposals from the incoming government, the latest inflation readings (most recent consumer price index and producer price index) have stagnated above 3%, while the Federal Reserve's target is 2%.

Torsten Sløk, chief economist at Apollo Global Management, pointed out that due to the resilience of the economy, the Federal Reserve will have to maintain high interest rates for a longer period and consider the impact of fiscal policy.

Sløk stated: "If the three main areas where new policies might come from are lower tax rates, more tariffs, and immigration restrictions, then the textbook prediction is that all of these will exert upward pressure on inflation."

Of course, the Federal Reserve under Powell had already dealt with tariffs and trade issues during the first Trump term.

In July 2019, the Federal Reserve began its rate-cutting cycle. In the second quarter of that year, U.S. GDP growth was 3.4%, and Powell described the move at a press conference as a preventive measure, "to guard against the downside risks posed by global economic weakness and trade policy uncertainty."

This Federal Reserve Chair has gone to great lengths to ensure that he is not seen as taking political action. He said: "The trade tensions seem to have had significant impacts on financial market conditions and the economy, evolving in different ways, and we must keep up. By the way, I want to make one thing clear here: we have no role in assessing trade policy unless the uncertainty of trade policy has a short- and medium-term impact on the U.S. economy. We are not criticizing trade policy. This is really not our job."

Of course, the job of the Federal Reserve is to ensure price stability and full employment. In the coming year, although Powell may be reluctant to do so, he may not be able to avoid the impact of fiscal policy on the Federal Reserve's dual mandate.

Article reposted from: Jin Ten Data