US economy clocks wins but Fed policy is a wildcard

The US economy is pulling ahead of its global peers.

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Inflation is moderating, and the Federal Reserve is cutting interest rates.

Add in a decrease in unlawful southern border crossings and revved-up domestic production in several critical industries, and they amount to a rough list of Donald Trump's campaign promises.

It is a list of economic wins that the President-elect is inheriting in large part because of policies that the Fed and Biden administration have pursued in recent years.

The economy is doing better than most economists predicted a few years ago. Forecasters widely warned that the Fed would seriously harm the economy as it tried to control runaway inflation by sharply raising interest rates in 2022 and 2023. Instead, price increases have come down substantially without a broader implosion. The unemployment rate is low. Consumers are spending.

"The US economy has just been remarkable," Fed chairman Jerome Powell said during a news conference on Dec 18, after the Fed cut rates for a third time in 2024.

But a variety of risks - some sheer happenstance, some floated by Trump - could interfere with that rosy outcome just as the newly re-elected president takes office.

Mr. Powell's news conference underscored that one economic wild card is central bank policy, which hinges on the outlook for inflation.

After moderating sharply in 2023 and through much of 2024, price increases have been stickier than expected in recent months. That was one factor that prodded Fed officials to revise their inflation forecasts higher for 2025.

But recent lackluster progress on price gains is not the only reason to worry about the inflation outlook.