The Tariff Turmoil Could Trigger 4 Interest Rate Cuts in.jpeg
The American Federal Reserve reduced the price of federal funds (overnight) in September, November, and December last year, to reduce a total of 100 basis points. It was reflected in some aggressive prices from 2022 and 2023 when the central bank was trying to tame the inflation scale for four decades in the Consumer Prices Index (CPI).
The consumer price index continues to decline towards the annual goal of 2 % of the Federal Reserve, and since the American economy faces a state of great uncertainty now in the face of amazing global trade tensions, Wall Street expects several other price discounts this year.
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According to CME collectionThe Fedwatch tool, which calculates the possibility of potential decisions of the Central Bank based on the interest price markets market, may be four discounts before the end of 2025. This will have significant effects on S & P 500 (Snpindex: ^Gspc) The index, but not the way you may expect.
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In March, the consumer price index increased by an annual rate of 2.4 %, which is the slowest pace since 2021. Given that the reading was in the stone goal of the target of inflation by 2 %, it usually shows the way for more discounts in interest rates.
However, on April 2, president Donald Trump announced plans to impose a tariff on all goods imported from trade partners in America, which threw a giant key to business.
Trump’s age is a 10 % comprehensive tariff on imports from each country, as well as a series of “mutual tariffs” much higher on imports from specific countries that have major commercial imbalances with the United States, mutual fees are now under a 90 -day stand, with the exception of those placed on many Chinese imports, which currently stand by 245 % for some products.
Definitions can increase the price of goods for consumers, so policy makers who are now awaiting a waiting for additional consumer price index in the coming months before you can make sure that interest rate discounts are the right step.
However, the customs tariff can also push a sharp slowdown in economic activity, which may give the Federal Reserve a reason to reduce prices even if the inflation remains sticky. According to Reuters, seven banks in Wall Street have sparked their chances of stagnation in the United States, specifically because of the definitions.
Goldman Sachs It is believed that there is a chance of 45 % of the recession in the next 12 months (up from 35 % before the tariffs), and Jpmorgan Chase The possibility puts 60 % (previously from 40 %).
As a result, some Wall Street banks also reduced their expectations for 2025 for federal funds, which implicitly means larger price discounts than initially expected by the end of the year. According to the Fedwatch tool for the CME group, the Central Bank can reduce prices by 25 basis points: once in all meetings of politics in June, July, September, and December.
Usually interest rates are good for the corporate sector because they allow companies to borrow more money to provide their growth, and reduce debt cost, which can enhance profits. In addition, low prices encourage investors to stay away from risk -free assets such as cash in favor of growth assets such as stocks, which can push the market up.
However, the beginning of each price cutting cycle since the early first decade of the twentieth century predicted a correction in the stock market, and this time it does not differ. The S&P 500 currently decreased by 12 % of its highest level ever, although three price cuts are used at the end of 2024:
Ycharts data.
Global trade tensions (and their ability to weaken the economy) are the main reason for the recent decline in the S&P 500 index, not interest rate discounts last year. But the timing is certainly interesting because the Federal Reserve tends to reduce prices when the economy shows signs of weakness, and the above plan indicates the first few rates in a specific session may Be a good indication of the decline in the temporary stock market.
Moreover, the Federal Reserve has a documented history of the party’s delay. The graph below shows how to follow the recession (represented in the areas full of contentment) periods of high interest rates. This indicates that federal reserve rates are often increasing in interest rates, or very slow to reduce them in the face of economic weakness:
Ycharts data.
Whether the last correction in the S&P 500 turns into a full bear market can depend on economic data in the next few months. If the American economy slips into a technical stagnation – referred to in two consecutive quarterly from the decrease in GDP – it is possible that investors will cut off their exposure to stocks further.
Simply put, the long -term performance of the stock market is driven by companies’ profits, and companies make less money during stagnation due to factors such as high unemployment and less spending on consumer, which leads to low stock prices.
Additional interest rate discounts should help get the economy out of any potential stagnation, and since the stock market is an aspiration machine, investors may tempt in the long run to start buying a deal or two. After all, despite the confrontation of the Dot-Com bust, the global financial crisis, the Covid’s pandemic over the past 25 years alone, the S&P 500 is still constantly climbing to new standard levels.
Perhaps this time will not be different, especially since many countries are already negotiating new trade deals with the Trump administration. As a result, any additional weakness in the stock market can still have a long -term purchase opportunity.
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The introductory disorder can lead to 4 discounts in interest rate
