If these tariffs last, it could lead to 5% inflation in the US this year. Now many would argue that's a temporary shock that policymakers would look thorough but that harkens back to the the 'Team Temporary' talk that is a stain on Powell's legacy.
I fear the Fed won't come to the rescue. Recent Fed commentary has been shifting more hawkish, not in the other direction.
Kugler: There may be reasons why tariffs have more prolonged effectsGoolsbee: Fear is if tariffs on imports jumps out of just imports and move into other costs, or people freak out and change behaviorWilliams: My forecast is that inflation will be relatively stable this year with upside risks ... Full impact of tariffs can play out over long horizonDaly said PCE data decreased her confidence in her forecast for two rate cuts this yearBarkin warned not to assume just a one-time change in prices from tariffsCollins: Inflation risks are to the upside, it remains a question of how long tariff-driven inflation will last
There are no counter examples as these are all the Fed comments since the FOMC decision.
If Powell takes a more-hawkish tone, we should see another round of kicking-and-screaming in risk assets and a potential reversal of USD weakness. Then again, the market could also conclude that if the pain in equities is bad enough, the Fed put is still there.
This article was written by Adam Button at www.forexlive.com. Read More Details
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