Potential Impact Of Trump's Policies On US Economy

According to Odaily, a report by China International Capital Corporation (CICC) titled 'Potential Impact of Trump's Policies on the US Economy' highlights several key points regarding the future actions of the Federal Reserve. The report suggests that under normal assumptions, the Federal Reserve is expected to continue lowering interest rates, albeit at a slower pace, with the terminal (neutral) rate being higher. However, under extreme assumptions, the Federal Reserve's stance could turn hawkish, potentially resuming rate hikes in 2025, as policymakers are unlikely to tolerate inflation rising above 5% again. The report further elaborates that to curb inflation, the nominal policy rate generally needs to be higher than the inflation rate, implying a positive real policy rate. This indicates that the Federal Reserve might need to raise interest rates by 75 to 100 basis points in 2025. Historically, the United States experienced a similar scenario during the 1984-1986 rate-cutting cycle, where small rate hikes were implemented repeatedly to address inflation and the risk of economic overheating.