The U.S. Federal Reserve could carry out fewer interest rate cuts than previously expected next year should President-elect Donald Trump’s proposed global tariffs take hold, former Fed policymaker Loretta Mester said Tuesday.

Mester indicated that the Fed’s outlook was set to change under the incoming Republican administration’s fiscal plans, and that markets may be right in forecasting fewer than the four reductions previously forecast.

“Next year, the pace of the cuts will be affected by where they’re seeing fiscal policy,” she said during a panel at the annual UBS European Conference hosted in London.

“My own view is the market is right, they’re probably not going to have as many cuts next year as was assumed or expected in September,” added Mester, who was president of the Cleveland Federal Reserve until her retirement earlier this year.

Markets trimmed their forecasts for rate cuts following Trump’s election victory last week, with speculation growing around his tariff proposals and their implications for the world economy.

Trump vowed during his election campaign to intensify a trade war that began during his first term in office, saying that he would impose blanket 10% to 20% tariffs on all U.S. imports, and a particularly punitive higher rate of 60% to 100% on Chinese goods. Economists have warned that such measures could be inflationary.

As a result, markets are now expecting 1 percentage point of cuts in the first half of 2025, followed by a further 25 basis point reduction in the second half of the year, according to median poll forecasts cited by Reuters. Economists polled by Reuters also expect a 25 basis point cut at the December 2024 meeting. That would take the fed funds rate to 3% to 3.25% by the end of 2025, slightly below the central bank’s median “dot-plot” projection.

Mester also expects fewer than four reductions next year, though she said she still sees potential for the bank to cut at its next meeting in December.

At that point, policymakers could be expected to provide a “first look” at how the Trump administration’s fiscal proposals will affect their forecasts, Mester said. However, further details of the full fiscal package — and its implications for monetary policy — are not expected until early next year.

“It’s not just going to be tariffs. There’s things going on on immigration, there’s probably going to be things going on on the tax side, and there’ll be spending also,” Mester said.

“All of those together are going to have to inform — ‘has the outlook for the U.S. economy changed?'” she added.

It comes as concern is growing among global policymakers about the implications of Trump’s fiscal plans, particularly on tariffs.

Olli Rehn, governor of the Bank of Finland and a European Central Bank policymaker, warned Tuesday that the impact of such levies would be “detrimental” to the world economy, but added that Europe needed to be prepared for that eventuality.

“The significant import duties in the verbal pipeline could have detrimental ramifications for the global economy,” Rehn said during the UBS panel.

“A trade war is the last thing we need,” he continued. “If a trade war is to start, the European Union must not be unprepared as it was in 2018.”

Correction: Markets are now expecting 1 percentage point of cuts in the first half of 2025, according to median poll forecasts cited by Reuters. An earlier version misstated the figure.

The Swiss National Bank on Thursday took a third step to loosen monetary policy this year, bringing its key interest rate down by 25 basis points to 1.0%.

The trim, which had been anticipated by 30 of 32 analysts surveyed in a Reuters poll, marked the SNB’s third interest rate reduction of 2024.

It was the first major Western central bank to reduce interest rates back in March.

The third trim comes amid similar signals from the European Central Bank and the U.S. Federal Reserve, which took the long-awaited plunge to slim down its interest rates with a 50-basis-point cut last week. Domestically, Swiss inflation remains subdued, with the latest headline print pointing to a 1.1% annual increase in August.

The Swiss franc gained ground against major currencies on the back of the latest interest rate decision. The U.S. dollar and euro were down nearly 0.14% and 0.16% against the Swiss coin, respectively.

The SNB acknowledged the broader trend of its currency rally as a key contributor to the Thursday reduction.

“Inflationary pressure in Switzerland has again decreased significantly compared to the previous quarter. Among other things, this decrease reflects the appreciation of the Swiss franc over the last three months,” it said in a statement.

“The SNB’s easing of monetary policy today takes the reduction in inflationary pressure into account. Further cuts in the SNB policy rate may become necessary in the coming quarters to ensure price stability over the medium term,” it added.

This breaking news story is being updated.