Federal Reserve Faces Challenges from Rising Bond Yields and Trump Policy Uncertainty

The Fed prepares for its first 2025 policy meeting as bond markets tighten and new Trump administration policies create economic unknowns.

The Federal Reserve is expected to maintain its current interest rate range of 4.25%-4.50% during its January 28-29 meeting after three rate cuts in late 2024.
Rising bond yields, with 10-year Treasury notes reaching mid-4% and 30-year mortgage rates climbing to 7%, are increasing borrowing costs and raising concerns about long-term economic growth.
President Donald Trump's second-term policies, including potential import tariffs and immigration measures, are creating uncertainty about inflation and labor market dynamics.
The U.S. economy showed resilience in 2024, with unemployment ending the year at 4.1% and inflation nearing the Fed's 2% target, but inflationary pressures could persist due to policy shifts and market reactions.
Fed Chair Jerome Powell has emphasized a cautious approach to monetary policy, as officials weigh the impact of fiscal policies and bond market developments on the broader economy.