Krishna Guha, head of central bank strategy at Evercore ISI, cautioned investors against expecting a quick rate reduction by the central bank’s Federal Open Market Committee in the wake of Trump’s tariff increase.
“We do not see the Fed as inclined to take out immediate insurance against market/growth weakness associated with trade escalation, with the committee starting from a position in which it has just reaffirmed that it is not close to cutting rates,’’ he said in a May 9 note to clients.
What Bloomberg’s Economists Say
“Assuming there’s no speedy resolution and higher tariffs remain in place, forecasts for global growth will be shaded down, with the main blow landing on China and its Asian neighbors." Tom Orlik, chief economist at Bloomberg EconomicsFor the full note click here
Fed Chairman Jerome Powell and his colleagues left interest rates unchanged last week, defying Trump’s call for a cut, and said they would be patient in deciding what action to take going forward.
“We don’t see a strong case to move rates in either direction,” Fed Vice Chairman Richard Clarida told Bloomberg Television on Tuesday, echoing a comment made last week by Powell.
Clarida said that the trade conflicts had “only had a very modest effect on the economy” last year.
He added though that the central bank will “certainly’’ take trade developments into account in setting policy in the future.
This article was provided by Bloomberg News.