Trump’s Mexico tariffs could bring rate cut

June, 2019 Print

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President Trump’s latest tariffs on Mexico may get him the interest rate cut from the Federal Reserve that he wants, according to asset manager Schroders.

Following Trump tweeting that he wanted to put tariff’s on Mexico, the bond market has now priced in nearly three rate cuts of a quarter point each this year from the Fed. Schroders chief economist, Keith Wade, said he expected to see easing from the Fed in 2020, when there is more evidence of an economic slowdown. But Wade added that tariffs could ratchet up trade tensions and hit growth in both Mexico and the US. He added: “As always with Trump one cannot be certain whether his latest move is part of a bargaining strategy and that ultimately he will not follow through. The problem for the Fed is that the market seems to have decided he means it. Consequently it is more difficult for the Fed to push back without triggering considerable financial volatility.”

The Fed said it would act appropriately to sustain US growth and Wade commented there could be a precautionary rate cut around late summer. He concluded: “It remains to be seen whether Trump’s threat on tariffs achieve a resolution of the immigration crisis with Mexico, but it may get him the rate cut he wanted from the Fed.”

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