Trump’s tariffs could delay Fed rate cuts as inflation risks rise

Trump’s trade policies will likely put Fed rate cuts on hold — at least for now: The US Federal Reserve is expected to hold off on cutting interest rates until at least next quarter, with US President Donald Trump’s recently announced tariffs igniting fresh concerns about inflation risks, according to a Reuters poll of 101 analysts conducted between 4-10 February. The survey results suggest that Fed officials will adopt a wait-and-see approach as they assess how tariffs and other policy changes could affect the economy before making any further rate cuts.

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The forecast marks a stark shift from Reuters’ January poll, which saw close to 60% of economists agree that the Fed would cut rates in March. In contrast, just 22 of the 101 analysts polled in February expected a cut in March, with another 45 penciling in a cut for 2Q 2025. Only 17 of the 99 analysts who offered end-of-year forecasts believed that the Fed would hold off on rate cuts until 2H, with another 16 not expecting any cuts this year. Futures markets, for their part, are currently pricing in just over a 50% probability of one rate cut by mid-2025.

The size of the year’s cuts is also up in the air: The range of forecasts for the Fed’s end-2025 rate target is unusually wide, spanning from 3.00-3.25% on the lower end to 4.50-4.75% on the high end.

The uncertainty is all thanks to Trump: The Fed and economic analysts alike have been bracing for the impact of Trump’s policies since his election win in November 2024, with officials indicating that they are reluctant to make additional cuts until the full effect of his policies becomes clear. The Fed declined to make a rate cut at the last meeting of its Federal Open Market Committee (FOMC) on 29 January, prompting Trump to deride the decision before making a sharp about-face several days later.

The US president’s recently imposed tariffs are a key part of the picture, with ING Economist James Knightley telling Reuters that “the tariffs are inflationary and could be quite negative for economic growth as well.” Trump has already imposed a 10% tariff on USD 450 bn worth of Chinese goods and 25% tariffs on steel aluminum imports and vowed to impose reciprocal tariffs matching those imposed by other US trade partners. The president has also threatened to impose 25% tariffs on US imports from Mexico and Canada, with the measures on hold until 1 March as the neighboring countries continue to negotiate over border security.

Analysts have broadly reconsidered their inflation forecasts since Trump’s win, with 90% of the economists that participated in both the October 2024 and February 2025 Reuters polls revising their 2025 inflation estimates upward by an average of 40 basis points between the two polls.

We may not get more clarity on the Fed’s long-term vision for interest rate cuts for quite a while: “The uncertainty is likely enough to keep Fed officials on the sidelines over the coming months, and if high tariffs are ultimately imposed then the subsequent rise in inflation will prevent further easing over the remainder of 2025,” Capital Economics’ Neil Shearing told the newswire.

MARKETS THIS MORNING-

Asian markets are in the green in early trading this morning — Japan’s Nikkei is looking at gains of 0.4%, the Shanghai Composite is up 0.1%, and Kospi is up 0.2%.

THE CLOSING BELL-

The EGX30 fell 1.1% at yesterday’s close on turnover of EGP 4.1 bn (10.7% above the 90-day average). International investors were the sole net buyers. The index is down 0.6% YTD.

In the green: Abu Kir Fertilizers (+2.5%), Telecom Egypt (+0.8%) and CIB (+0.2%).

In the red: Palm Hills Development (-5.3%), Rameda Pharma (-4.6%) and Qalaa Holdings (-4.3%).

CORPORATE ACTIONS-

#1- EFG Holding doles out 4.5 mn shares to employees: Our friends at EFG Holding transferred some 4.5 mn shares valued at EGP 33.8 mn to their employees yesterday as part of the company’s staff reward and incentive program, according to an EGX bulletin.

#2- Talaat Moustafa Group CEO Hisham Talaat Moustafa purchased 450k of the group’s shares this week, according to an EGX disclosure (pdf).

#3- Saib Bank shareholders in line for dividends: Saib Bank’s board approved a proposal to distribute cash dividends of USD 19.9 mn — or USD 0.6 per share — for the fiscal year 2024, according to an EGX disclosure (pdf).