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Continuing Inflation Trend Could Reduce Fed Reserve Appetite for More Rate Cuts
By Prathapan Bhaskaran - Apr 09, 2025, 01:20 AM ET
Last Updated - Apr 09, 2025, 09:13 AM EDT
Trump Administration econmists have been pushing Fed Chair Powell to reduce rates to spur infra spending
The market chaos and inflation fears that President Donald Trump’s global tariff wars have ignited could reduce Fed Reserve's appetite to cut interest rates. The Trump administration’s push for lower interest rates to stabilize the markets needs favorable inflation numbers. But the Federal Reserve has been reluctant to trim interest rates saying the inflation numbers need to come down closer to Fed target of 2%.
Related News: US Inflation Sees Modest Increase in February 2025
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The Trump team is banking on lower interest rates that will increase the amount of funds available for industries to borrow for building infrastructure to move production back to the country. Trump campaigned on the promise of moving production back to the U.S. soil by a stringent tariff regime. Washington has imposed a universal 10% tariffs on all imports to the U.S. and additional reciprocal tariffs. Trump has also threatened punitive tariffs on countries that go for retaliatory tariffs against Washington.
Upward trending prices
The Consumer Price Index for March 2025 is expected to move up continuing its trend of the previous two months. The Bureau of Labor Statistics reported the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.2% on a seasonally adjusted basis in February, after rising 0.5% in January. Over the last 12 months, all items index increased 2.8% before seasonal adjustment, the report said, led by the index for shelter that accounted for nearly half of the monthly all items increase.
The shelter index increase was offset only by a 4% decrease in the index for airline fares and a 1 decline in the index for gasoline, indicating lesser travel and appetite to spend. Of particular worry for the administration would be the food price, which increased in February, rising 0.2%.
Geopolitical tensions are likely to keep energy prices buoyant, leading to further price rise, affecting inflation. Goldman Sachs has warned of a likely recession while JP Morgan Chase attributes a 60% chance of a recession this year.
Related News: US inflation is lingering and tariffs threatened by Trump could nudge prices in wrong direction
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