The market may have had excessive expectations for the impact of the new US government's policies, and the Federal Reserve's monetary policy adjustment speed will not be as rapid as the market expects.

Morgan Stanley's research report released on the 8th stated that despite Trump's re-election and the possibility of both houses of Congress being controlled by the Republicans, the Federal Reserve is unlikely to react to the new government's policies before May next year.

Analyst Seth Carpenter believes that although the Trump administration is expected to implement new measures in areas such as tariffs, immigration policy, and fiscal policy, the Federal Reserve will not immediately adjust monetary policy due to the lag in policy implementation.

This week, Powell also stated in the latest press conference that he will 'not speculate, not guess, not assume' about Trump's policies, but will 'model and incorporate them into the dual mandate framework.' This means that the Federal Reserve will decide on the pace of rate hikes based on changes in economic data, rather than direct market sentiment or political influences.

There is still a long time before the policies take effect, so the Federal Reserve's policy may not be eager to adjust in the short term.

Despite strong policy expectations driving market sentiment, Goldman Sachs emphasizes that as the Federal Reserve maintains a wait-and-see stance, they need to observe how policies affect the economy before adjusting monetary policy. These policies may take effect as early as January next year, and with implementation and other changes, the wait could be even longer.

Therefore, analysts believe that the Federal Reserve is unlikely to adjust its policy at the January or March meetings next year, and the earliest response window may be in May next year.

"People must realize this fact: the Federal Reserve will not react until the impact of policy changes is evident in the data itself."

Three major policy influences the interest rate policy path: tariffs, immigration, fiscal policy.

Morgan Stanley divides the Trump administration's macroeconomic policies mainly into tariffs, immigration, and fiscal aspects. The report predicts that the Trump administration's tariff policy will be one of the earlier policies to be introduced. If tariffs of 10% are imposed on other countries globally, the core inflation rate of the USA may rise by approximately 0.9 percentage points, while GDP growth rate may decrease by about 1.5 percentage points.

Although the new tariff policy may be implemented in stages, Morgan Stanley believes that the negative impact of tariffs will exert some restraint on economic growth, despite the current resilience of the USA economy, which may not immediately lead to a recession.

In addition, the report points out that although immigration reform is generally not considered a market focus, reducing immigration will limit the supply of labor in the USA, thereby increasing inflationary pressure.

Regarding fiscal policy, the report suggests that if the Trump administration successfully continues its tax policy, the USA economy will not receive significant fiscal stimulus until 2025, stating that "any changes will only occur in 2026". Any additional fiscal spending may mainly come from the reinstatement of state and local tax relief policies, but its overall economic impact will be limited.

Editor/Somer