Join Kathleen NOW and find out all about tariffs and inflation, the outlook for interest rates and whether the Fed’s ‘hawkish’ views will persist
What a difference a few weeks make. At the last FOMC meeting at the end of January, hopes were high that the US economy would continue to grow at a strong pace at the same time as inflation moderated. However, the outlook for the US economy has changed dramatically in just a few weeks. The backdrop to this meeting includes a global trade war and a stock market rout. The S&P 500 has fallen by 7% since the last FOMC meeting, and the Nasdaq 100 is lower by more than 9%.
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Create account Try a demo Download mobile app Download mobile app- This is not Powell’s first rodeo when it comes to tariffs. He was at the helm during President Trump’s first term in the White House. However, there are two significant differences. Firstly, Trump’s latest tariffs are more broad-based in nature, and more wide-ranging, which adds an extra layer of complication to the assessment of tariffs on the global economic outlook. Secondly, the way the Fed views tariffs may have changed since 2018. Back then the Fed predicted that tariffs would cause deflation, as higher prices would be cancelled out by rising unemployment and a slowdown in growth.
- Even if inflation forecasts are revised higher, we think that the Fed will keep their forecasts for interest rates steady. There has been a dramatic change in US bond yields since the start of this year.
- On balance, so far this year the Federal Reserve is leaning towards a hawkish stance, as members sound concerned about the outlook for inflation on the back of the global trade war. It will be worth watching FOMC member Christopher Waller in the coming weeks and months.
- When politics gets in the way of the economy then things can get messy, as we have seen with the large sell off in US stocks.
- EUR/USD is sticky around the $1.10 level, while GBP/USD has touched $1.30 in recent days.
- The S&P 500 is moving closer to correction territory and is down by more than 8% in the past month. All of the Magnificent 7 tech stocks have now eradicated any YTD gains, after Meta saw its gains disappear on Tuesday.
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