US President Donald Trump's decision to jack up tariffs on goods from China fuelled 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.
But asked Friday if the new US tariffs could lead to a rate cut, Atlanta Fed President Raphael Bostic did not rule it out."Depending on the severity of the response, it could," Bostic told reporters."It really depends. It depends on what businesses decide to do and then it depends on how long the tariffs are in place."Fed projections published in March suggest most policymakers expect rates to be on hold through the end of the year.
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.
Source: News Formal (newsformal.com)
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