Donald Trump’s tariffs have shocked global markets — and left the US Federal Reserve with a thorny problem: cut interest rates to help prevent a sharp economic slowdown, or keep them high to pre-empt a new burst of inflation.
The market bias is towards cuts. After the plunge across equity markets following the president announced his “liberation day” tariffs, traders are now betting that the Fed will reduce rates four or five times this year — up from three before Trump’s big reveal.
The message from Fed chair Jay Powell, however, was more hawkish for rates. The tariffs would have a “persistent” impact on US inflation, he said on Friday, which would make it harder for the central bank to begin easing.
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