Fed Seen as More Likely to Cut Rates After U.S. Tariff Boost
Comment of the Day

May 10 2019

Commentary by Eoin Treacy

Fed Seen as More Likely to Cut Rates After U.S. Tariff Boost

This article by Rich Miller for Bloomberg may be of interest to subscribers. Here is a section:

The Federal Reserve probably will be more inclined to cut interest rates now that President Donald Trump has followed through on his threat to increase tariffs on U.S. imports from China. But it won’t rush into doing so.

While the higher levies will put upward pressure on inflation by raising import prices, the central bank will likely be more attentive to the potential drag they’ll exert on the economy by depressing consumer and business spending, Fed watchers said.

“We would expect the Fed to initially focus on the growth implication and look past the inflation impact,’’ Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, said in a May 7 note to clients.

Eoin Treacy's view

The Federal Reserve is highly unlikely to raise rates against a background of low domestic inflation and heightening international tensions. That has been one of the primary reasons bond market investors have concluded we are at the top of the interest rate cycle.

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