Trump, the Fed, and what’s ahead in 2025

But the central bank’s moves after that are much less certain. Here’s why:

• The job market is healthier and inflation more persistent than some central bank officials believed back in September when they dropped rates for the first time in two-and-a-half years.
• President-elect Trump’s plans for sharp immigration restrictions and steep tariff increases, combined with tax cuts and deregulation, could rekindle inflation.
• Fed policy makers aren’t sure of the ideal level where rates would neither hinder nor accelerate economic growth.

Bottom line: Interest rates might not fall as far in 2025 as Wall Street expects.

The news: Investors see more than a 90 percent chance the central bank will trim its main lending rate by a quarter-point on Wednesday, based on interest rate futures prices tracked by CME FedWatch.

• The move would leave the federal funds rate at about 4.3 percent, down a full point from September.

Why it matters: Fed officials are proceeding cautiously as they seek to extend what has so far been a soft landing: successfully taming inflation without a job-killing recession.

Unemployment has moved higher — to 4.2 percent last month from 3.7 percent at the start of the year. But Fed chair Jerome Powell said last month that the labor market is in “solid condition, having cooled off from the significantly overheated conditions of a couple of years ago.”

The economy, he said, “is not sending any signals that we need to be in a hurry to lower rates.”

But: Consumer borrowing rates have remained stubbornly high.

• The average fixed rate on a 30-year mortgage ended last week at 6.95 percent, according to Mortgage News Daily. That’s nearly a point higher than before the Fed started easing rates.

The pressure on rates is coming from two sources that could keep inflation elevated: stronger-than-expected economic growth, and investors’ concerns about the effect of Trump’s policies on prices.

As I wrote last month, Trump and Powell may be on a collision course unless rates fall quickly, something the president-elect pledged during the campaign. The federal funds rate averaged 1.8 percent during Trump’s first term.

What’s next: The Fed is expected to drop rates by three-quarters of a point next year, according to the median forecast tracked by Bloomberg.

But the outlook could shift on Wednesday when Fed officials release their latest quarterly economic projections.

• In September, they penciled in a full point of rate cuts in 2025.

Eric Rosengren, a former president of the Federal Reserve Bank of Boston, sees the Fed cutting rates by just a half-point next year, “reflecting concerns that further inflation progress may be less than expected at the September meeting.”

Rosengren also believes the Fed should hold rates steady this week. He cites three reasons: price gains have leveled off well above the central bank’s 2 percent target; Trump’s potentially inflationary policies; and an “ebullient” stock market that “indicates monetary policy may not be as tight as the Fed thinks.”

Final thought: Following the 2008 financial crisis, everyone — consumers, businesses, and investors — grew accustomed to super-low interest rates.

Then came the pandemic and inflation, and the Fed ratcheted up borrowing costs to its highest point in two decades.

As the Fed seeks to set a sustainable path for the economy, the days of cheap money are clearly over. What’s not clear is what the new normal might be.

Larry Edelman can be reached at larry.edelman@globe.com.