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: TADAWUL-

The TASI fell 0.4% yesterday on turnover of SAR 6.4 bn. The index is up 3.2% YTD.

In the green: Raoom (+5.6%), Cenomi Retail (+5.4%) and Zamil Indust (+4.9%).

In the red: Taprco (-3.4%), Batic (-2.6%) and DWF (-2.4%).

THE CLOSING BELL: NOMU-

The NomuC rose 0.5% yesterday on turnover of SAR 48.9 mn. The index is up 0.3% YTD.

In the green: Alrasheed (+7.0%), Atlas Elevators (+5.4%) and Bena (+5.1%).

In the red: Leaf (-6.3%), Quara (-5.4%) and Fad (-5.1%).

CORPORATE ACTIONS-

#1- Bank Aljazira’s board is recommending a 25% capital increase to SAR 12.8 bn via bonus share issuance at a rate of one bonus share for every four shares held, it said in a disclosure to Tadawul. The capital hike will be financed in equal proportions from statutory reserves and retained earnings and comes in a bid to bolster the bank’s capital base. The transaction is still pending shareholders and regulatory approvals.

#2- Saudi Investment Bank is distributing SAR 498.9 mn in dividends for 2H 2024 at SAR 0.40 per share, it said in a disclosure to Tadawul. Distribution is set for Tuesday, 4 March.