US | Fed to remain cautious as probable tariffs cast a shadow on monetary policy easing

Summary

The risk has grown that the Fed could keep rates on hold for more than one meeting as the nature and purpose of the upcoming tariffs is still unknown (i.e., their magnitude, their temporary or permanent nature, used mostly as a negotiating tool?).

Key points

• Key points:
• We expect the Fed to stay put this week; our focus will be on any signals pointing to a more long-lasting pause and a likely delay of the rate cut cycle we currently expect.
• Though strongly influenced by the uncertainty around Trump’s policies, this week’s pause is also explained by recent solid economic data.
• The labor market is either at or very close to a healthy equilibrium, which could be at risk in 2H25 amid the potential effects of renewed anti-immigration policies.
• Data continued to ease inflation concerns, but risks stemming from above-trend growth and Trump’s policies will likely prompt the Fed to maintain a cautious approach.
• Further easing of at most 50 bps before year-end is still on the table, but the Fed could stay on the sidelines for longer until it knows more details about Trump’s tariffs.

Geographies

Topics

Tags