Fed's Williams says tariffs boost U.S. inflation, weigh on growth

16 Mai, 2019, 08:55 | Auteur: Auguste Feret
  • Eric Rosengren

However stocks and bonds reversed course and turned off mixed after Fed Chairman Jerome Powell declined to state whether some investors are in expecting the central bank this season to trim interest rates, misguided, some traders have been gambling will happen before year's end.

The risk of a broader or more protracted trade battle could push the market back to the darker days of the fourth quarter past year, when trade tension helped drive the S&P 500 Index toward its weakest levels of 2018, she said.

Along with the heat he has placed on China, Trump has leaned hard on the Fed to cut its benchmark interest rate. In March, the Fed stated that it seemed growth had slowed from the fourth quarter. Three years from now, expectations are for 2.7 percent, down from 2.9 percent.

Investors will be carefully parsing that the Fed's announcement, which is due out Wednesday afternoon, especially to the way the Fed thinks the economy is performing any references.

A further complication for the Fed: The inflation outlook among US consumers dipped sharply in April, countering Fed policymaker hopes that inflation dynamics will improve and the pace of price increases soon rise toward their target level. Investors had feared that the Fed would revolutionize the market if it lasted increasing borrowing costs.

Bond prices climbed after a report on the manufacturing industry came in weaker than analysts expected.

Stocks to the Dow and the S&P 500 are equally up 0.4 percent. The dollar was steady against the yen and euro. By making it cheaper to borrow money, low prices tend to aid stock markets and the market.

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Steeper equity-market declines could weigh on yields, as the Federal Reserve under chairman Jerome Powell has already proven its readiness to tilt dovish when market conditions are strained. The president's comments will likely feed concerns in other countries over Trump's willingness to break long-standing norms of global economic diplomacy.

Since late April, for example, a St. Louis Federal Reserve measure of the inflation rate expected five years from now, based on trading in different types of bonds, dipped to 1.9% from 2.1%, a sign traders also see weaker inflation ahead.

"You can not game what two leaders.are going to do from day to day", said Anthony Saglimbene, global market strategist with Ameriprise Financial Services in Troy, Michigan, of the high-stakes standoff between Trump and Chinese President Xi Jinping.

"If the impact of the tariffs - and whatever financial market reaction to those tariffs is - causes more of a slowdown, then we do have the tools available to us, including lower interest rates", Boston Fed President Eric Rosengren, a voter this year on Fed rate policy, said in an interview with Reuters.

Economists expect the Fed to state it won't raise its key interest rates anytime soon because it monitors the overall health of the USA and worldwide market.

The Fed will reiterate a message which has reassured investors and consumers No rate hikes are likely soon. With inflation remaining tame, the Fed is viewed as able to remain at least during this season.

Nevertheless Trump insists that the market can do much better, and to that end he's now demanding what no mainstream economist would favor: Cutting on speeds further.

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