The fiscal landscape of the United States is becoming increasingly difficult to predict given the prevailing economic uncertainties. As economists attempt to look into their crystal balls, their projections concerning a potential Federal Reserve or Fed rate cut this year is becoming less and less certain.
A considerable body of financial analysts, economists and thought leaders have vehemently opined that the difficulty to foresee any action regarding the Fed’s rate cuts can be attributed to the complexity of the prevailing financial situation. This difficulty is not just a result of a considerably unstable global economic environment, but also the populist pressure on interest rates changes and ambiguous trade policies. These factors collectively make it difficult to forecast the decisions of the Federal Reserve Board.
The Federal Reserve has been meticulously pursued by President Donald Trump who continues to express his displeasure over the current interest rates. The President firmly believes that lower interest rates could generate financial stimulus and thereby ensure a notable acceleration of economic growth.
However, the Federal Reserve often refutes this contention. They stand firm on the argument that their policy decisions are invariably influenced by prevailing macroeconomic circumstances rather than populist demands. The Federal Reserve continues to emphasize that their commitment is towards achieving and maintaining maximum employment and stable prices rather than succumbing to political pressures.
The most recent cut, which occurred in October 2019, was aimed at softening the impact of the trade war with China. It was the third rate cut in that year, whittling down the rates to a range of 1.5% to 1.75%. But since then, the Federal Reserve has been on a pause mode, as it monitors the geopolitical and economic impacts surrounding the trade war.
As per the research by the Wall Street Journal, around 65% of economists were expecting more rate cuts in 2020. However, as per the recent findings of the same researchers, this figure dropped to 40%. The primary reason for this drastic shift in anticipation is because of the emergence of an apparent consensus among policymakers who believe rates are currently at appropriate levels that do not necessitate any immediate changes.
When it comes to probable expectations for 2021, economists are mostly divided. A mere 24% believe that there are chances for rate hikes in the next year. Others are primarily undecided, indicating the complexity of predicting future economic events.
Economists and financial experts have also given considerable weightage to potential geopolitical shifts that might influence the Federal Reserve’s decision on rate cuts. The US Presidential Election, the final shape of the US-China trade deal, and the landscape following Brexit are some of the key geopolitical events that might influence global economic stability.
In a nutshell, the road to predicting the decisions of the Federal Reserve seems like a challenging terrain, given the myriad global and national occurrences that could significantly influence such decisions. While the debate between economic health versus political pressure continues to be a prominent factor at play, economists worldwide are becoming gradually more credulous of the unpredictable nature of the financial realm.