Federal Reserve Chair Jerome Powell indicated last week that policymakers are likely to stay on hold for now, waiting for clearer signs on how Trump’s tariffs are affecting inflation. However, if the labour market starts to weaken, the Fed may consider lowering interest rates.

Bank of America say:

• “Occam’s razor suggests that inflation is already stuck above target, with risks to the upside from tariffs over the next several months.”
• “The Fed might still cut rates this year if there is compelling evidence of labor market deterioration. But the lack of progress on inflation raises the bar for cuts.”

BoA also warned that tariffs could still have a more pronounced effect on the U.S. economy going forward.

• “An optimistic take on the data would be that the pickup in goods inflation reflects some preemptive price hikes ahead of the tariffs.”
• “Still, there is most likely a lot more tariff-driven inflation in the pipeline.”

In Sintra on Tuesday Federal Reserve Chair Powell blamed tariffs for the lack of rate cuts.

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