Federal Reserve’s Response to Potential Trump VictoryFederal Reserve’s Response to Potential Trump Victory Analysts at Evercore ISI have outlined how the Federal Reserve (Fed) plans to address potential economic shocks if former President Trump wins the election. Strategic Posture The Fed is adopting a strategic posture that will leave it well-prepared for various scenarios by mid-2025. It will focus on inflation and employment numbers, without adjusting its baseline outlook based on speculative Trump policy actions. Communication and Transparency Despite potential pressure from Trump to delay rate cuts, Evercore analysts believe the Fed will prioritize cutting rates in September if necessary. They emphasize the importance of the Fed clearly explaining its reasoning to maintain market confidence. Rate Path under Trump If Trump wins, the Fed plans to incorporate conservative estimates of his policies into its forecasts starting in December. This approach aims to balance gradual adjustments with flexibility to address unexpected developments. Fed Updates Evercore anticipates that the Fed’s updates on Trump-related impacts may lag behind private sector expectations. This could create a gap between market anticipations and the Fed’s economic projections. Strategic Cautiousness The Fed’s strategy is characterized by caution and an avoidance of sudden, drastic changes. Analysts predict a “saucer-shaped” rate path in 2025 under Trump, with gradual adjustments followed by significant hikes if necessary. Stability and Flexibility By maintaining a strategic, cautious approach, the Fed aims to preserve stability and flexibility in the face of political and economic uncertainties. This approach is designed to mitigate potential shocks and support economic growth in the long term.
With former President Trump gaining popularity in the polls, analysts at Evercore ISI outlined in a note Friday how the Federal Reserve could cushion the potential economic shocks of a Trump victory.
Evercore said the Fed is focused on maintaining a strategic posture that would leave the bank “well-positioned” for a range of scenarios by mid-2025.
Despite potential pressure from Trump to delay rate cuts, analysts at Evercore ISI believe “Trump’s bluster won’t stop the Fed from cutting rates in September,” though it does underscore the importance of the Fed explaining its reasoning methodically.
They claim the chance of a cut in July is “close to zero” given the current climate.
Looking ahead, the firm notes that the Fed plans to continue to focus on inflation and employment numbers in the near term, without adjusting the baseline outlook based on speculative impacts from potential Trump policy actions.
“At this point, the actual policy actions and their consequences, excluding changes in confidence and risk premia, are difficult to predict and would be institutionally risky,” the analysts note.
However, they acknowledge that private sector behavior and financial conditions that reflect expected Trump shocks will be taken into account.
If Trump wins, Fed staff will begin incorporating conservative estimates of Trump’s policies into their forecasts starting in December, supplemented with scenario analyses.
“Fed updates will likely be slower than private sector thinking,” Evercore says. They believe this could create a gap between market expectations and the Fed’s Summary of Economic Projections (SEP).
In essence, Evercore ISI envisions a strategic, cautious approach from the Fed, aiming to avoid sudden, drastic changes.
They predict a possible “saucer-shaped rate path in 2025 under Trump,” with gradual adjustments to avoid the need for deeper cuts, followed by significant hikes.
According to Evercore ISI, this approach would help the Fed maintain stability and flexibility in an uncertain political and economic landscape.
