U.S. President Donald Trump's decision to jack up tariffs on goods from Chi...
MERIDIAN, Miss./SAN FRANCISCO - U.S. President Donald Trump’s decision to jack up tariffs on goods from China fueled market bets Friday that the Federal Reserve will cut interest rates later this year, with one Fed policymaker suggesting he could be receptive if economic data deteriorates.
In contrast Trump and other top administration officials have repeatedly urged the Fed to cut interest rates to boost economic growth, which is expected to slow this quarter from a 3.2 percent annual pace last quarter as the stimulative effect of last year’s tax cuts fade. Fed projections published in March suggest most policymakers expect rates to be on hold through the end of the year. Fed Chairman Jerome Powell earlier this month predicted that recent low inflation readings were driven by transitory factors, and reiterated his view that there is no pressing need now to either raise or lower rates.
Analysts say price increases from tariffs are likely to be transitory, and the Fed will likely ignore them. Bart Hobijn, an Arizona State University economics professor, recently co-authored a study with San Francisco Fed researchers that estimated “sizable” but one-time inflationary effects from higher tariffs.
If that happens, he said, the Fed may need to respond with a “full-on” rate-cutting cycle, he said, adding that this is not currently his forecast.
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