Fed is struggling with the unknowability of tariff inflationary impact
Uncertainty surrounding U.S. import tariffs and their inflationary consequences is weighing on financial markets and clouding the Federal Reserve’s policy outlook, according to analysts at Macquarie.
In a note to clients on Tuesday, Macquarie highlighted a growing list of companies pulling earnings guidance due to tariff-related risks.
“Among the main ‘worry points’, we think, are [a] batch of U.S. companies that have withdrawn their forward guidance on earnings in view of the uncertainty around U.S. import tariffs,” the firm wrote.
Macquarie explained that the issue came to a head with Ford Motor Co . (NYSE:F) suspending its full-year outlook, citing potential “industrywide supply chain disruption” and the risk of further tariff hikes.
Despite signs of slowing global growth, the firm also noted that the dollar has failed to rally.
“The slow global growth signals have not put a bid under the USD this morning. That’s in keeping with the deterioration of the USD’s ‘safe haven’ status over the past few weeks,” Macquarie stated.
With the Federal Open Market Committee set to meet Wednesday, Macquarie expects the Fed to keep interest rates on hold and avoid signaling a clear directional bias.
“Jay Powell will reiterate that he and the FOMC are well placed to wait for more clarity before reacting to the U.S. import tariffs with either rate cuts or rate hikes,” said the firm.
The core challenge, Macquarie said, is that “the Fed’s struggles with the unknowability of the inflationary implication of tariffs (and the longer-term effect from a rise in inflation expectations) compel the FOMC to dissuade traders from automatically assuming that aggressive rate cuts are ahead.”
While outward economic resilience persists, Macquarie cautioned against assuming monetary policy easing is imminent, warning that the Fed remains in wait-and-see mode as policy uncertainty grows.
Source: Investing.com
