Federal Reserve considers delaying rate cuts due to tariff pressures
Date
1/28/2025 2:58:46 AM
(MENAFN) Experts believe that the Federal Reserve might delay rate cuts or even consider raising rates due to inflationary pressures resulting from President Donald Trump’s tariff policies. Despite the strong macroeconomic indicators, these tariff threats may complicate the Fed’s decisions moving forward.
James Knightley, international chief economist at ING, pointed out that the 100-basis-point rate cut implemented by the Fed last year has set a high bar for further rate reductions. He explained that any additional cuts would likely depend on clear signs of economic weakness and a reduction in inflation, factors that may not materialize due to the effects of Trump’s policies.
Knightley also discussed how Trump’s low corporate tax rates and relaxed regulations might benefit the economy, but his tight immigration policies could lead to rising prices, making it more challenging for the Fed to take further action on rates. As a result, the timing of any rate cut could be delayed as the central bank evaluates these factors.
The Federal Reserve’s typical approach is to wait for policy changes to be implemented before incorporating them into its forecasts. However, Knightley noted that with Trump’s re-election and stark differences in policy direction compared to former President Joe Biden, Fed Chair Jerome Powell may feel pressure to adjust expectations earlier than usual. Trump's tariff policies, intended to improve US manufacturing competitiveness, may also contribute to short-term price increases.
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