Upon his inauguration in a week, Trump has pledged to implement a new set of tariffs. This agenda has become the subject of protest from various nations, even as the market experience declines. Still, Trump has not altered his stance. UBS has issued a cautionary note regarding them, asserting that they pose a risk to the Federal Reserve. The Fed has been on a path to fight inflation in the US. The goal was to achieve a 2% which has not yet been fulfilled. According to reports, members of Trump’s incoming economic team are discussing slowly ramping up tariffs month by month. This approach is aimed at boosting negotiating leverage while helping avoid a surge in inflation. However, UBS thinks otherwise. Arend Kapteyn at UBS AG brought about a stance that the Federal Reserve would face “problematic” consequences if Trump decides to progressively increase tariffs upon his takeover of office, as it continues to combat inflation’s final stages. One of the objectives of the new administration is to restore America’s greatness. The strategy involves emphasizing America’s place in the world. However, the new administration must ensure that its priorities are aligned. Is it recognition or the implementation of policies that are beneficial to them? UBS’s analysis of the potential impact of tariffs on the Fed In a statement, Arend Kapteyn explained how tariffs work, saying, “We think of tariffs as a one-off price level shift, and then it goes away a year later and then provided it’s not big enough you don’t have spillover effects so you don’t get second-round effects that are sort of inflationary. ” He added, “But if you do rolling tariffs, it’s a little like the repeat of the pandemic and the Ukraine shock that we had; you have one supply shock after another, and you start to create a much higher peak in inflation, so I think much more difficult to sort of know what to do with that as a central bank.” Notably, the labor market and demand are exhibiting minimal indicators of distress. In addition, the data on US inflation is increasing the likelihood that progress toward lower prices has essentially stalled. Moreover, the inflationary impact of implementing tariffs across the board is significantly greater than that of excluding items for which there is no alternative. He said, “We do think it’s inflationary And then, of course, it becomes an issue of tariffs on who and how much and what do you exempt.” Even so, he stated that the Fed may refrain from making any cuts if inflation remains at or near 3% for the duration of the year. Still, there are analysts who believe that US tariffs are unlikely to have a “huge impact” on inflation and growth. Trump’s ushers in economic uncertainty and inflation The uncertainty surrounding the future of global development and inflation is worsened by Trump’s return to the White House. In addition, the change in the Federal Reserve ‘s approach highlights significant uncertainty for 2025. Some economists are apprehensive about the potential for the recent increase in unemployment to persist. Others are concerned about the potential for persistent inflation. The Federal Reserve will face the challenge of maintaining the appropriate equilibrium between the need to sustain economic activity and the prevention of inflation, which is currently at approximately 2.4%. Still, there is an anticipation that interest rates will remain elevated in the face of a declining inflation rate, which continues to exceed the Fed’s 2% target rate. However, individuals remain optimistic that the economy and consumers will not be unduly affected by this high-rate environment. No real consensus at the Fed about the long-term outlook. The range of estimates for the fed funds rate over the next few years is wide. pic.twitter.com/2TglpT5H2R — Kathy Jones (@KathyJones) December 18, 2024 Notably, the gross domestic product growth rate for the third quarter was revised up to 3.1%. The fourth quarter is expected to grow at a similar rate. Also, it may eventually begin to slow down in 2025 from its recent pace. Nevertheless, analysts anticipate that it will continue to surpass the consensus forecast of 2.2% and the longer-term expectations of 2%. Meanwhile, investors are anticipating the release of US inflation data on Wednesday. The data is expected to indicate that underlying prices experienced only a slight decrease at the conclusion of 2024. This could potentially bolster the Fed’s decision to adopt a cautious approach following its three rate cuts last year. In 2025, the money market is pricing only one reduction. A Step-By-Step System To Launching Your Web3 Career and Landing High-Paying Crypto Jobs in 90 Days.
