Wall Street Adjusts Rate Cut Forecasts After Trump's Victory

The political dust hasn't even settled since Donald Trump's decisive victory, but some on Wall Street are already reining in their forecasts for rate cuts, expecting a more cautious Federal Reserve.

Nomura stated that it now expects the Federal Reserve to cut rates just once in 2025 after a pause, with an additional 50 basis points of cuts in mid-2026. This will bring the Fed's terminal rate to 3.625%, up from a prior forecast of 3.125%, as Trump’s proposed tariffs are likely to stoke inflation pressures.

The less dovish outlook comes just as the Fed kicks off its two-day meeting, which is expected to culminate in a 25 basis point rate cut on Thursday.

Trump's economic policies are likely to focus on tariffs and tax policy, which Nomura estimates will reduce growth and increase inflation. This situation would prompt the Fed into a cautious stance on rate cuts, as the central bank may have to balance inflation risks with weaker economic growth.

Some on Wall Street believe it's too early to assess the outcome of a second Trump Administration. “It remains to be seen how far he can go with the measures he has proposed during the election campaign,” said Scotiabank Economics.

In the short-term, however, positive economic momentum is considered “plausible.” Scotiabank Economics added a cautionary note regarding the longer-term outlook, stating, “In the longer term, sharp increases in tariffs and a drop in the number of immigrants could be damaging to economic growth.”