The Federal Reserve is switching from data-dependent to increasingly more Trump-dependent

The Federal Reserve is likely to hold off on interest rate cuts in the first half of the year, as persistently elevated core inflation and a resilient U.S. economy in the first quarter keep policymakers cautious, according to analysts at TD. The potential economic impact of new tariffs under a Trump administration in the second quarter further reinforces their view.

While the Fed remains officially data-dependent, TD argues that its decisions are becoming increasingly influenced by political developments:

• In our view, decisions by Fed officials, while still data-dependent, are increasingly turning more Trump-dependent.

“The Fed meeting offered no directional anchor” analysts noted, highlighting the uncertainty surrounding the policy stance of a new administration and its implications for inflation.

Given this backdrop, TD maintains a bullish outlook on the U.S. dollar, viewing any dips as buying opportunities, particularly against the euro, Canadian dollar, and British pound. They also note that positioning in currency markets has recently become more balanced, potentially setting the stage for further USD strength.

This article was written by Eamonn Sheridan at www.forexlive.com.