President Trump’s sweeping new tariffs on imports from the European Union and Mexico could reduce the likelihood of Federal Reserve interest rate cuts this year, according to Bank of America.
The president’s latest move, proposing 30% tariffs on EU and Mexican goods effective August 1, follows earlier letters to leaders in Asia and Latin America announcing fresh U.S. tariff rates. Countries targeted include Japan, South Korea, and the Philippines.
Bank of America economists wrote in a note Monday that the new measures could lift the U.S. effective tariff rate by roughly 4 percentage points, with further upside risks if broader 15–20% tariffs are introduced:
- “That would carry around 30 basis points of stagflationary risks”
- Increased uncertainty around the inflationary impact of tariffs may prompt the Fed to hold off on rate cuts
- “Extending the ‘escalate to de-escalate’ strategy just increases the option value of waiting for the Fed, in line with our out-of-consensus call of no Fed cuts this year.”
When the big guy wants rate cuts but keeps spiking inflationary pressure.
This article was written by Eamonn Sheridan at www.forexlive.com.