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The Fed is waiting for the fog of Trump’s trade war to lift
@Source: brisbanetimes.com.au
That will disappoint some within financial markets.
When Trump announced the pause in the reciprocal tariffs, and more recently when there were signs that the US and China might back away from their tit-for-tat extreme tariff rates (America’s 145 per cent rate on imports from China and China’s 125 per cent retaliatory tariffs), the sharemarket rebounded, bond yields, which had been surging, fell back and investors priced in as many as four rates cuts this year. The markets are acutely sensitive to any developments in the trade war.
The outcome of the meeting is predictable because the outlook for the US economy is so unpredictable.
Now, with Powell making it clear that the Fed wants greater clarity before it moves, expectations have become more sober. Markets are pricing in three cuts, but an increasing number of economists anticipate only two, with the Fed seen as unlikely to move before September.
That makes sense. While the reciprocal tariffs have been paused, the 10 per cent baseline tariff on all imports remains and appears permanent, as do the 25 per cent tariffs on aluminium and steel imports, some tariffs on automobiles and auto parts, the removal of the exemption from duties for small parcels and massive increases in port charges for Chinese-owned, operated or built ships.
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