Fed could find itself in a policy Catch-22 if tariffs spike inflation | Global News Avenue

A complicated situation is that it appears around tariff drama, which may cause the Federal Reserve to be caught in uncomfortable capture 22. It is not certain whether its policy leverage is used to tame inflation or promote growth.

Many bridges can cross the president Donald TrumpFor the efforts to use taxes as tools for foreign and economic policies, the central bank will have a delicate balance.

Many economists expect tariffs to increase their prices and reduce the speed of domestic GDP. The main problem is within the scope of any need to adjust the Federal Reserve policy.

Kathy Jones, the chief fixed income director, said: “Maybe you will get a price shock, or the currency it is repaid is offset with the currency imposed by tariffs. But in fact, the long -term impact often has a negative impact on growth.” Charles The strategist of Charles Schwab. “You put these combinations together, which makes the Fed truly combine.”

exist Trump and China, Canada and Mexico are controversialThree leading trading partners in the United States. Today, as the president negotiates with these government leaders, the threat to Canada and Mexico has been postponed. However, China’s situation has been quickly upgraded into a TIT-FOR-TAT conflict with a market advantage market.

Different history

The higher price caused by tariffs is actually the belief conditions of economists, although historical records provide less certainty. For example, the SMOOT-Hawley tariff in 1930 was actually proven to be sloppy because they worsen the Great Depression.

When Trump proposed tariffs during his first term, the inflation rate was low, and the Fed sought “neutral” level to increase interest rates. one Followed by manufacturing decline In 2019, although it was not spread to a wider range of economies.

This time, the target tariffs used by Trump have been used Threat of blanket tariffs This may change the calculation of monetary policy. Schwab predicts that the full tariffs can reduce the growth of 1.2 % of GDP, and at the same time increase the core inflation by 0.7 %, which will increase the latter’s measures to more than 3 % in the next few months.

Jones said that a broader tariff has a greater price impact and more growth. “Therefore, I can see that (the Federal Reserve) stay for a longer time, the threat of tariffs is hanging in the market, and maybe I see these prices rising, and then have to move to loose growth later this year or next year or (anytime, anywhere) Influence occurs. “

She added: “But they must be in a difficult position now, because this is a double -sided coin.”

indeed, The market largely hopes that the Fed will be close At least in the next few months, policy makers have observed the reality of tariff remarks, and the impact of all interest rate reduction points to reduce interest rates in the last four months of 2024.

If any parties blink or their inflation rate is not as good as imagined, the Fed can focus on their dual -authorized employment and stay away from inflation.

Eric Winography, director of developed marketing director, said: “They are now very comfortable to put on hold, and the return and forth of tariffs will not affect this, especially because we don’t even know what they will look like.” Alliancebernstein’s Research. “Before that, you have to talk about your thinking meaningfully for many months.”

“Many uncertainty”

Winography is those who believe that tariffs may lead to a certain price, but they will not produce the basic inflation that federal officials considers when formulating policies.

This is consistent with some recent statements of Federal Reserve officials. They said that if tariffs have launched a comprehensive trade war or in some way to help more basic supply or demand -driven factors, they may only affect their decisions.

Boston Fed President Susan Collins told CNBC in one item: “How the policy has great uncertainty, and if you don’t know what actual policy will be implemented, it is actually impossible “Possible impact” interview on Monday. From the perspective of policy, Collins said that her current position is “be patient, be careful, and there is no urgency of additional adjustment.”

Market pricing It is still pointed out that the Fed’s tax rate may be reduced at the June meeting, and then one -quarter percentage points may be reduced in December. The Federal Reserve last week Choose to keep the federal fund interest rate stable In the range between 4.25 % -4.5 %.

Wimerd said he believes that the Fed can reduce the situation two or three times this year, although it did not start until the tariffs.

Winography said: “In view of the U.S. economy is usually compared with trade frictions, I think this does not make the Fed’s needle larger.” “The market assumes the mechanicality of the reaction function from the United States. It is not a fact to respond to this. “