Home / Business / Trump has just launched his trade battle to a new front – and now traders are safer than ever that the Fed will cut interest rates

Trump has just launched his trade battle to a new front – and now traders are safer than ever that the Fed will cut interest rates

  Donald Trump Jerome Powell Drew Angerer / Getty Images

  • President Donald Trump threatened on Thursday to levy duties of up to 25% on goods arriving from Mexico to the United States by The problem of illegal immigration has been resolved . "
  • Fed Fed rate cut expectations rose in the news, and cyclists now saw a 50% chance for the Fed to cut interest rates in July becomes.
  • The average amount The period between the last interest rate increase and the first rate cut is seven months ̵
    1; we are currently at five months.
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President Donald Trump moved his trade battle to a new front on Thursday threatening to impose tariffs of up to 25% on goods coming from Mexico to the United States. "The problem of illegal immigration is being addressed."

The announcement shocked financial markets and put pressure on global markets, already shaken by the recent resumption of trade between the US and China . These worries cut Friday's big averages by more than 1%, and expectations for a Fed rate cut went up.

The market now sees a 50% chance that the Fed will lower interest rates at its July meeting, rising to 80% in September and 91.4% at the end of the year. On Thursday, traders saw only a 34.5% chance that the Fed would lower interest rates in July.

The Fed has recently raised interest rates in December and forecasts a next hike for 2020. However, swift change in policy is out of the question, according to Natixis economist Joe LaVorgna. He says that the average time between the last rate hike and the subsequent cut is seven months. A rate cut in September would be nine months after the last increase.

  Fed interest rates Natixis

"If the Fed fails to meet investors' expectations, financial conditions (such as equities) could worsen dramatically," said Natixis economist Joe LaVorgna on Thursday Note. "This would have a negative impact on an economy that is already in the middle of the slowdown."

Trump's announcement on Thursday is the most recent threat to the US economy, which has already been shown to have lost steam, as import tariffs from Mexico have led to a significant increase in prices for products such as automobiles, potentially affecting consumer spending in the US.

Recent reports on indicators such as nominal commodity exports and manufacturing activity have disappointed, and the US Federal Reserve's GDP in Atlanta shows that the US economy will only grow by 1.2% in the second quarter, compared to the recently revised value of 3.1% growth in the first quarter.

A rate cut would placate Trump. He has long demanded that the Fed cut interest rates and start quantitative easing by injecting new money into the supply. This would boost the economy. "They would see a rocket ship," he told reporters in April.

And LaVorgna said in a Friday news note that the Fed should lower interest rates sooner rather than later to raise inflation as the Fed has failed to reach its 2% inflation target over the last 12 months.

"The Current Divergence of Inflation The goal is that it would take years until 2% – plus inflation for the core PCEs – would average 2% on average," wrote LaVorgna. "At the present time, this is highly unlikely, as inflation is extremely low in most parts of the world."

Others, however, believe that the Fed should stick to its previous plan and prepare for rate hikes by 2020.

"By December, we will see a further rise in inflationary pressures that will cause the Federal Reserve to take action to raise interest rates again," said Scott Minerd, the global chief investment officer for Guggenheim Investments Milken Institute's Global Conference on April 29 . "Even though the economy is strong, it is probably a good time to relax risk assets and prepare for potential rate hikes."

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