Fed chair Jerome Powell said the results of Tuesday's presidential election, which paved the way for a US chief executive who has pledged widespread deportation of immigrants, broad-based tariffs, and tax cuts, would have no "near term" impact on US monetary policy.
Powell said the Fed would continue assessing data to determine the "pace and destination" of interest rates as officials reset tight monetary policy to account for inflation that has slowed markedly in the past year and is nearing the US central bank's two per cent target.
But as the new administration's proposals take shape, the Fed chief said the central bank would begin estimating the impact on its twin goals of stable inflation and maximum employment.
"It's a process that takes some time," said Powell, who spoke in a news conference on Thursday following the Fed's decision to reduce its benchmark overnight interest rate to the 4.50 per cent-4.75 per cent range.
Assessing the impact of the incoming administration will take time, Fed chair Jerome Powell says. (AP PHOTO)
"It's all of the policy changes that are happening. What's the net effect? The overall effect on the economy at a given time? That's a process ... we go through all the time with every administration."
The first years of President Joe Biden's administration, for example, included passage of major infrastructure and other spending bills that added to growth but, many economists feel, also contributed to the breakout of inflation the Fed had to suppress with rapid rate hikes in 2022 and 2023.
Inflation has since fallen and Fed policy rates are coming down as well, a process Powell said was still expected to lead to a more neutral rate of interest that neither stimulated nor restrained the economy.
Yet the exact destination remains unknown, and might become even harder to pin down if fiscal and tax policies change as rapidly as Trump has pledged.
Powell, who was appointed by Trump and then eventually clashed with him during the Republican president's first term, will now oversee monetary policy during those first critical months of the new administration.
Trump has indicated he will let Powell continue as Fed chief until the end of his four-year term in 2026, and Powell said bluntly on Thursday that he would not resign if asked.
For now, at least, both inflation and interest rates are moving lower in line with a Fed outlook that sees price pressures continuing to ease amid ongoing economic growth and a job market the central bank says has "generally eased" but remains healthy.
Powell said the economic outlook was solid and the Fed hoped to keep it that way.
"We think that the economy, and we think our policies, are both in a very good place, a very good place," Powell said.
