When Federal Reserve Chairman Jerome Powell briefs the media after the central bank’s policy-making meeting next week, he will likely be asked to answer a political question: How will the Fed incorporate the economic plans of President-elect President Donald Trump, including tax cuts, tariffs and deportations, in her economic plans and monetary policy?

In November, Powell’s response was unequivocal: “We don’t guess, we don’t speculate, and we don’t speculate.” This time, the answer should be different.

In fact, the Fed can and should occasionally make assumptions about what policymakers will do. In December 2016, when I was the Federal Open Market Committee’s vice chair for policymaking and Trump had just been elected to his first term, the staff forecast assumed that “Congress will pass a 1% personal income tax cut of GDP, which will start in the third quarter of next year.”

At the time, I asked the staff a question similar to the one Powell will likely take: “What is the threshold for taking steps to raise trade barriers or tighten immigration policy?” Based on the response then and my experience at the Fed, I see four criteria.

First, there must be a high probability that the policy change will take place.

Second, the shift must be large enough to have significant consequences for economic growth, employment, inflation, or financial conditions, including stock prices and interest rates.

Third, the Fed needs some clarity on what policy will be. In December 2016, potential tariffs were not included in the forecast. As Steve Kamin, then head of the Fed’s International Finance Division, put it, the possibilities were “so varied” and their magnitude “so difficult to measure” that the staff “chose not to make assumptions.”

Fourth, if stock and bond markets anticipate a policy change, it is hard to ignore. That’s one reason the tax cuts made it into the December 2016 projections. “It was clear that participants in the financial markets judged that something was likely to happen,” David Wilcox, then head of the Fed’s Research and Statistics Division, said at the time.

So how can Powell proceed? I think he will follow the example of 2016. He will say that the Fed expects an extension of the 2017 tax cuts and has built that into the forecast – but that no adjustments have been made regarding tariffs or deportations. Including the extension of the tax cut makes sense, because it is very likely and large. Trade and immigration policies, by contrast, remain uncertain, as they were in 2016.

Powell won’t be able to indicate how any of that affects the FOMC’s estimates because committee members aren’t bound by staff assumptions. I expect they will largely follow staff, incorporating only the continuation of current tax policy. As a result, their forecasts will be rosy, with no penalties for growth, inflation, productivity or labor supply from tax increases, tariffs or deportations.

Specifically, I expect the median forecast to predict slightly stronger growth in 2025 and 2026 compared to the September median forecast. The unemployment rate will remain slightly above the level Fed officials see as consistent with steady inflation. Inflation will fall to the Fed’s 2% target, likely in 2026. By 2026 or 2027, the federal funds rate will fall to what the Fed views as the neutral level consistent with 2% inflation. That estimate would likely include just 50 to 75 basis points of rate cuts in 2025 (compared to 100 basis points in the September 2024 forecast) and a slightly higher neutral rate – possibly 3% or more, but significantly lower than the level that the futures prices currently implies.

The basic narrative will be the same as in September: As the labor market eases and inflation recedes, monetary policy will gradually move from accommodative to neutral. When the Trump administration’s tariff and deportation policies come into focus, that forecast could get worse.

Bill Dudley, a columnist for Bloomberg Opinion, served as president of the Federal Reserve Bank of New York from 2009 to 2018. He is chairman of the Bretton Woods Commission and has been a non-executive director at the Swiss bank UBS since 2019.