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Edward Ding
Opinion
Edward Ding

Why Donald Trump will focus on the Fed in 2026

With the US midterm elections looming, the White House seeks victory over inflation and the stimulating effects of lower borrowing costs

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US President Donald Trump salutes after disembarking from Air Force One at Joint Base Andrews on October 30. Photo: Reuters
Edward Ding
Edward Ding An-hua, a former chief economist at China Merchants Bank, is a visiting professor at Shenzhen Finance Institute, CUHK-Shenzhen, and a council member of the China Chief Economist Forum.
US President Donald Trump’s tariffs will undoubtedly play a significant role in how we will remember 2025. While economists predicted a growing possibility of a recession back in April, the US economy displayed unexpected resilience, with third-quarter growth reaching a stunning 4.3 per cent, bolstered by robust consumer spending and strong capital expenditure related to artificial intelligence.

The impact of tariffs on inflation persists, although it appears less severe than economists feared. The personal consumption expenditures price index, a gauge closely watched by the US Federal Reserve, rose to 2.8 per cent in the third quarter, and 2.9 per cent for core, which excludes food and energy. Both were above earlier respective readings of 2.1 per cent and 2.6 per cent, and remain well above the Fed’s 2 per cent inflation target.

Given the strong US economy and sticky inflation, the Fed’s continuous rate cuts seem less convincing. However, as the 2026 midterm elections loom, Trump’s policy scales are tilted decisively towards the Fed. Trump’s desire for lower interest rates has surpassed his appetite for further tariff hikes. This might not be a change of heart, but a matter of simple arithmetic driven by fiscal necessity.

One thing is for sure. The impact of Trump’s tariffs has proved lower than expected, with implementation tempered by a wave of exemptions and bilateral deals. Currently, the US effective tariff rate is stabilising around 15 per cent. Perhaps this is exactly what Trump intended: using high-stakes threats as a precursor to tactical compromise.

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