Will import tariffs increase inflation? (Photo: Freepik, Pablographix)
Washington – money is important in the economy – but worth nothing without trust. Independent central banks worldwide have been established as an important trust factor. The US president now shakes this pillar. Today the Fed decides for the first time after Trump’s taking office.
“I will ask for the interest to be reduced immediately”, Trump sounded last week. However, nobody expects the US Federal Reserve to deviate from a calm hand policy and reduces the key interest rate from the current range at 425 to 450 basis points.
Increasing inflation and strong job growth in December
A lot of data suggests a break: in December it is inflation rose by 0.2 to 2.9 percent in the 12-month comparison. The core rate without energy and food is 3.2 percent, far beyond the 2 percent goal. And the Labor market is robust with 256,000 new jobs.
Unlike Trump, his finance minister Scott Bessent recently in front of MPs pronounced for an independent central bank. Fed boss Jerome Powell does not assumethat the US President can dismiss him. He will not meet a request for resignation.
Powell: Fed is politically neutral – Trump’s plans do prices?
The President of the central bank, attacked by Trump in his first term, also made it clear: “We do not serve a politician, no political personality, no matter, no topic, nothing. It is all about maximum employment and price stability in the interest of all Americans. ”
Trump’s government style promises uncertainty. In the opinion of experts, many of his intentions are likely to heat the inflation: this includes tariffs, deportation of migrants, but also deregulation and tax cuts – which can also further boost the already strong economy.
Analyst: Interest cuts March and June-Current Fed forecast
In view of the many imponderables, he regarded the meeting in January as a placeholder with which the Fed is freedom of choice, thinks Mark CabanaAnalyst at the Bank of America. And Bradley Saunders, economists at Capital Economics, expects interest reductions from the Fed in March and June.
The Fed decision-makers already have possible trump measures in their December forecast taken into account. They corrected the number of expected interest steps and only expect 2 interest rate reductions in 2025 – previously the estimate was 4 reductions in the level of key interest rate.
Governor: tariffs no risk of inflation – forecast of the Fedwatch Tools
However: some actors such as Fed governor Christopher Waller Any tariffs speak an inflationary effect. The Republican used by Trump 2020 does not believe that tariffs influence his view of monetary policy. Interest cuts in the first half of the year are possible.
Hardly any of them bet on an interest rate reduction at the appointment markets: that CME fedwatch tool Earn the chance that the Fed today will keep the key interest rate stable at 4.25 to 4.5 percent. Even for the March session, the probability of this is high at a high 69.6 percent. (As of January 28, 4:50 p.m. CET)