Macroscope | Trump vs the Fed: why 2025 could be the year things get ugly
The Fed is making it clear that Trump’s policies come at a price, one that he might be unwilling to pay if inflation rises more sharply
Every December, TS Lombard, an economic and financial consultancy, publishes its “bold non-consensus” forecasts for the year ahead. This year, the adviser noted that “it has become increasingly difficult for our readers to discern whether we are joking” and “the distinction between reality and satire is arguably fuzzier than ever before, and there is a very strong possibility that some (or maybe several) of our predictions for 2025 are realised”.
One of TS Lombard’s forecasts is that relations between the US Federal Reserve and the incoming administration of Donald Trump will deteriorate dramatically. It predicts that “the situation reaches a crisis point in August, when the president threatens to ‘call in the army’ and [Fed chair Jerome] Powell unleashes the only force more menacing than the US military – the bond market”.
Bond markets, on the other hand, have responded to Trump’s return to the White House with a sense of foreboding. Since mid-September, when prediction markets began to shift in favour of a Trump victory, the yield on the benchmark 10-year US Treasury bond, which moves inversely to its price, has risen by nearly a percentage point.
