More growth this year and next (the FOMC raised its projection for real GDP growth this year by half a percentage point to 2.5 per cent from its September projection) and less unemployment (4.2 per cent from 4.4 per cent) than anticipated are a mix that, if sustained, would limit the extent to which US rates could be cut because they would flow through to higher than previously expected inflation rates, which is what was reflected in the latest projections.

Where the median projection in the Fed’s dot plot for its preferred measure of inflation (one that excludes volatile food and energy prices) was for an inflation rate of 2.2 per cent next year, it is now 2.5 per cent.

Powell, who said the decision to cut was a “closer call” than at previous meetings, made it clear that a chapter in the Fed’s thinking about inflation and interest rates has ended and that it would now be more cautious about future changes to rates.

“Our policy stance is now significantly less restrictive,” he said.

“We can, therefore, be more cautious as we consider further adjustments to our policy rate. From here, it’s a new phase.”

There’s good reason for caution, given core inflation is still running at 2.8 per cent and that, from January 20, Donald Trump will be in the White House and has promised that he will immediately start implementing his contentious and punitive tariff and immigration policies.

He has also pledged to extend and even increase the massive tax cuts he enacted in 2017 that will expire next year unless extended.

As a package, those policies could be – almost certainly would be – highly inflationary if implemented, and it isn’t out of the question that, instead of continuing to cut rates next year and in 2026, the Fed might again be forced to raise them.

Interestingly and unusually, Powell admitted at the news conference that some Fed policymakers had already started to incorporate the potential impacts of higher tariffs in their projections.

Trump has promised baseline tariffs of 10 to 20 per cent on all imports and a 60 per cent rate on imports from China, although that could be as much a bluff – leverage in trade and other negotiations – as his real intention.

The Fed and the rest of us won’t know how real Trump’s threats are and how significant their impact might be until some point next year.

As Powell said, the impact of Trump’s policies is, at this point, highly uncertain.

“We just don’t know, really, very much at all about the actual policies. So it’s very premature to try to make any kind of conclusion,” he said.

On current settings, assuming some improvement in the inflation rate, the likely next cut to US rates would occur quite early next year, perhaps at the Fed’s January meeting or, more likely, in March.

The question mark over Trump’s agenda won’t, however, be dispelled in the first few months of next year, which probably means that any further movement in the federal funds rate – whether down again or up – may not occur until the middle of next year.

Until a clearer picture emerges of the economic impacts of the new Trump presidency, there will be a lot of uncertainty – and considerable vulnerability for sharemarket investors in particular – within financial markets.

An interesting aspect of the Fed’s projections is that the median projection for the federal funds rate beyond 2027 is 3.1 per cent, an increase from September’s 2.9 per cent.

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While that is significantly below the effective funds rate at present of 4.58 per cent and the range now being targeted by the Fed of 4.25 to 4.5 per cent, it reflects a “neutral” rate – the policy rate that is neither expansionary nor contractionary – that is higher than its September estimates and therefore closer to the current federal funds rate than the Fed previously envisaged.

Leaving aside any impact from what Trump might or might not do, that would imply less scope for rate cuts than previously expected.

If there is a new, Trump-inspired surge in US inflation, the neutral rate would move higher again, along with the federal funds and market rates, and the Fed would find itself, once again, in Trump’s crosshairs.