Trump’s tariffs may impact Fed’s rate cut cycle: Experts

ISTANBUL

US President Donald Trump’s reciprocal tariffs, announced on Wednesday as the proclaimed “Liberation Day,” may impact the Fed’s rate cut cycle due to the uncertainties they fueled in global inflation and growth estimates, experts told Anadolu.

Philip Marey, senior US strategist at Rabobank, stated that the reciprocal tariffs are “likely to cause a stagflationary shock,” such as “higher inflation and slower growth.”

“This poses a dilemma for the Fed: higher inflation requires hiking but slower growth requires cutting,” he said. “On balance, they may prefer to keep policy unchanged once these effects show up in the data.”

“In other words, the reciprocal tariffs are likely to lead to a pause in the Fed’s cutting cycle,” he added.

Jennifer McKeown, the chief global economist at Capital Economics, noted that Trump’s tariffs are “likely to raise US inflation above 4% this year.”

“This will probably encourage the Fed to keep interest rates on hold rather than cutting as investors seem to assume,” she said.

James Rossiter, head of global macro strategy at TD Securities, noted that the Fed will hold off on rate cuts in the first half of the year and instead cut rates in the second half.

“After yesterday’s announcement, the danger is that the larger the shock from tariffs, the greater the risk that long-term inflation expectations become unmoored,” he said.

“This would certainly limit the degrees of freedom for the Committee in terms of responding to a possible larger-than-expected negative hit to growth,” he added.