Trump trade war increases the Fed rate reduction mark

President Trump’s world trade war has considerably increased the bar of the federal reserve to reduce interest rates, as prices are likely to worsen an inflation problem already knotted while damaging growth.

Jerome H. Powell, the president of the Fed, returned to his home in a long -awaited speech that came at the end of a turbulent week when the financial markets melted after the revelation of Mr. Trump’s pricing plans.

The measures would result in higher inflation and slower growth than initially expected, warned Mr. Powell during an event in Arlington, Virginia on Friday. He has shown concern about the bitter economic perspectives, but his emphasis on the potential inflationary effect of new prices clearly indicated that it was a significant source of anxiety.

“Our obligation is to maintain the long -term inflation expectations well anchored and to ensure that an ad hoc increase in the price level does not become a current inflation problem,” Powell said. The Fed’s mandate includes two objectives, promote a healthy labor market and maintain low and stable inflation.

Before Mr. Trump’s return to the White House, inflation is already stubbornly sticky, remaining well above the 2% lens of the Fed. However, the economy had remained remarkably resilient, which led the Central Bank to adopt a more progressive approach to interest rate reductions which led to that of reductions in January. During this political meeting, Mr. Powell established that the Fed should see “real progress on inflation or, alternately, a certain weakness on the labor market” to restart reductions.

But with the inflation which soared due to prices, it will take tangible evidence that the economy is significantly weakening for the central bank to resume. This could mean that the rate decreases are pushed up to much later this year or even delayed until next year if this deterioration takes time to materialize.