Trump’s Tariff Policy May Limit Federal Reserve’s Ability to Cut Interest Rates

According to a report from Samuel Tombs of Pansen Macro, President-elect Donald Trump’s plans to increase import tariffs could constrain the Federal Reserve's capacity to reduce interest rates. Trump’s tariff hikes, aimed at protecting U.S. manufacturers, may provoke retaliatory measures from foreign governments, potentially driving inflation upward and preventing core inflation from aligning with the Fed's target.As a result, the Fed may slow the pace of future rate cuts, though a quarter-point reduction is still anticipated on Thursday. Analysts suggest that inflationary pressures stemming from trade policy shifts could impact the Fed's monetary policy approach, reducing its flexibility in managing rates.