Economic forecast predicts tariffs' impact on U.S. economy, yet Fed remains unfazed by President Trump's latest threats, keeping interest rates unaltered.
The US Federal Reserve held its interest rates steady, predicting slower growth and higher inflation due to tariffs imposed by the administration. Despite President Trump's criticism of the Fed's chair, Jerome Powell, tariffs remain Trump's signature economic policy, causing concern with their impact on the US economy.
Money bloggers warn that tariffs could create an uncomfortable reality check for home buyers in the near future. The increased tariffs will lead to higher prices on goods, resulting from the extra taxes on imports. This economic blow will take time to manifest, but we can expect to see higher prices on shelves soon.
The level of uncertainty surrounding the tariffs remains elevated, as the exact impact of these levies remains uncertain. Some tariffs, such as those on specific countries, have been temporarily paused and are set to expire on July 8th. Still, it's unclear whether they will be extended or not.
Despite the challenges posed by tariffs, the economy is in a solid position, according to the Fed chair. The interest rate remains at 4.25%-4.5%, with the US rate serving as a range to guide lenders rather than a single percentage, like in the UK.
A slowdown in the US economy can have an impact on the UK economy, as the US is the UK's largest trading partner.
Just as the US is set to make its next move, the Bank of England will announce its decision on interest rates on Thursday, with no change expected.
Enrichment Data:- Tariffs have had a discernible negative impact on U.S. economic growth, reducing GDP growth by approximately 1 percentage point in the near term.- Higher tariffs have led to a rise in prices, with some economists estimating that tariffs have increased headline inflation by approximately 0.2 percentage points and raised U.S. prices by about one percentage point.- The increased inflation, slower growth, and policy challenges presented by tariffs create a challenging environment for the Federal Reserve, requiring a delicate balance between labor market deterioration and inflation pressures.- The Tax Foundation’s General Equilibrium Model estimates that the 2018-2019 tariffs on Chinese imports and steel/aluminum will lead to a long-run GDP decrease of 0.2%, a reduction in capital stock by 0.1%, and a loss of approximately 142,000 full-time equivalent jobs.
- Continuing tariffs could potentially increase financial burdens for both consumers and businesses in the general-news sector, as inflation caused by higher priced goods might lead to a conflict between managing costs and maintaining profit margins in the business world.
- The possibility of prolonged higher tariffs and rising inflation could trigger a war of sorts in financial markets, as investors may attempt to navigate uncertain waters, leading to increased volatility in stock markets and potential slowdowns in economic growth.
- With the US and UK economies interlinked due to trade, politics play a significant role in determining the trajectory of both economies. As the US continues raising tariffs, this could lead to strained relationships between the two nations, affecting the flow of finance and business, potentially impacting the overall health of each economy.
