Federal Reserve Interest Rates Remain Steady as Trade Wars Rumble On
Anticipated Federal Decision to Maintain Interest Rates, Disappointing Trump
Get ready for a standoff between the Fed and President Trump, Goldman Sachs predicts. The world's most influential central bank has kept mum on interest rate cuts, with a cloud of uncertainty looming over potential trade war repercussions for the US economy.
The Fed's current interest rate range of 4.25% to 4.5% isn't likely to change, according to leading forecasters, even after today's 7pm BST decision, thanks to the chaos caused by US tariffs.
Goldman Sachs expects the Fed to postpone three consecutive 25 basis point cuts to the summer due to mixed signals and a grim economic outlook. A lower-than-anticipated inflation rate in March kicked off Trump's call for interest rate cuts, but the Fed predicted price growth to remain robust at 2.7% this year. It may even revise that figure upwards later today.
Last week's data suggests a mostly optimistic labor market, but most forecasters foresee a stormier future for the US economy. According to a report by the banking giant, Fed officials are aware of the risks posed by tariffs to both aspects of their mandate and plan to wait for clarity.
If the economy takes a downturn due to tariffs and the unemployment rate begins to rise, the report suggests, the Fed might be inclined to cut interest rates, despite potential inflation concerns. Should the economy falter, the Fed's leadership may shrug off concerns about temporary tariff-induced price inflation and embrace further cuts.
The CME Group puts the probability of a rate hold today at a staggering 97%. Some of Wall Street's top banks believe that the Fed could keep interest rates on ice for the entire year.
Barring unexpected economic setbacks, like a full-blown recession or more surprise tariff announcements, a strong economy might keep the Fed on the fence until the end of the year.
Trump's attacks on Fed chair Jerome Powell have subsided since he dismissed rumors of Powell's imminent dismissal last week. However, Powell's press conference following the decision announcement is sure to be under scrutiny, as he responds to Trump's repeated demands.
Meanwhile, the Bank of England's Monetary Policy Committee (MPC) will watch the Fed's analysis of the US economy closely, as lower growth could weaken demand for UK exports. The MPC will announce its decision on interest rates at 12:02pm on Thursday, with most forecasting a 25-basis-point cut to 4.25%.
The MPC meeting minutes are sure to touch on the US economy, offering initial insights on the impact of Trump's tariffs on the UK economy.
As we look ahead to July 2020, it's uncertain how the Fed's decision-making process will play out amidst persistent trade tensions. One aspect for sure is that the Fed will aim to strike a balance between supporting economic growth and managing inflation.
In the historical context of 2020, the Fed had to navigate through the challenging landscape wrought by the COVID-19 pandemic, with interest rates at a low 0.25% by year-end, in an effort to stimulate economic recovery. Trade tensions and tariffs could add another layer of complexity to the Fed's delicate dance between economic growth and inflation management.
- Goldman Sachs anticipates a standoff between the Fed and President Trump, citing the Fed's reluctance to cut interest rates due to economic uncertainties caused by US tariffs.
- The Fed's current interest rate range remains steady at 4.25% to 4.5%, despite mixed signals and a troubling economic outlook as a result of trade wars.
- In the business world, forecasters expect the Fed to delay three consecutive 25 basis point cuts to the summer, due to a lingering cloud of uncertainty over the US economy's health.
- should the US economy falter due to tariffs and the unemployment rate begin to rise, the Fed might consider cutting interest rates, despite potential inflation concerns.
- In the realm of finance and general news, the CME Group estimates a 97% probability of a rate hold today, with some Wall Street banks predicting the Fed could keep interest rates frozen for the entire year.
- Amidst trade tensions, the Fed will continue to strive for equilibrium between supporting economic growth and managing inflation, as it navigates the complexities of 2020, which includes the challenging landscape caused by the COVID-19 pandemic and ongoing trade wars.
