Tariffs, Economic Doubts Prompt Fed Rate Cut Expectations
(MENAFN) Leader Donald Trump's tariffs are increasing concerns about a potential recession in the United States, while expectations for the Federal Reserve's rate cuts are growing due to the prevailing economic uncertainties.
Trump's announced reciprocal tariffs on April 2 are set to take effect this week, sparking worries about rising inflation. This comes at a time when U.S. inflation continues to exceed the Federal Reserve’s target level.
The potential for these tariffs to drive up inflation and hinder economic growth is complicating the Fed’s task of managing a balanced monetary policy.
Federal Reserve Chair Jerome Powell acknowledged that tariffs could push inflation higher and slow down economic expansion. However, he noted that it is still too early to decide on the right action for the bank.
For the past four years, the Federal Reserve has maintained a cautious approach.
The previous September, it lowered rates for the first time since the onset of the coronavirus pandemic, cutting them by 50 basis points.
The bank also reduced rates by 25 basis points in both November and December but paused further cuts in January.
In March, the Fed kept rates steady, maintaining them at a range of 4.25 percent to 4.50 percent.
Additionally, the Fed has not altered its long-term projections for the federal funds rate, keeping estimates for 2026, 2027, and beyond at 3.4 percent, 3.1 percent, and 3 percent, individually, which suggests two rate cuts might occur later this year.
However, analysts believe that the Federal Reserve will need clear signs of economic weakening before it proceeds with further rate cuts.
It is seen as unlikely that the bank will lower rates to mitigate a potential economic slowdown unless the labor market shows significant signs of weakening.
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