By Howard Schneider
Washington (Reuters) -Federal reserve officials who said they needed more details before estimating the economic impact of President Donald Trump’s commercial plans, perhaps achieved more than those who negotiated Wednesday when he presented broad rate analysts who could dramatically overcome the country’s economic perspectives.
Taxes, which Trump was joy as the Import Tax rate classification table, has a 10% reference line for major commercial partners such as the European Union, higher at 25% for Canada and Mexico, 46% massive in Vietnam and possibly more than 50% for China. In a few hours, economists were undergoing a recession in the United States and comparing the 1930’s and even in the late 1800’s, at the beginning of the country’s industrial development.
On average, imports can lead to a tax up to 27%, they estimated citi economists, with higher taxes in some types of goods and some countries and lower in others. Less than three months ago at the end of Joe Biden’s presidency, this rate was 2.5%.
If the logic of the administration’s detailed plans escaped from many private sector analysts, administration officials say it will lead to the North -American economic renewal after a “transition”, the implications had already begun to register among the federal reserve officials.
After fighting inflation for two years and approaching -keeping the low unemployment rate, North central bankers -Americans are now struggling with a concept they would prefer to avoid: stagnation or a situation where prices and unemployment rise as they did in the 70’s, a low point for the Fed.
Currently, “we are definitely in a stagnant environment,” said Fed Governor Adriana Kugler on Wednesday, in a statement, given in the same way that Trump presented his fare graph in the Roses Garden.
But “maybe we are in a situation where we already see some risks for inflation and some real increases in inflation, at least in some categories … maybe we will also see a little slowing,” said Kugler. “We are paying close attention, how much will this slowdown mean? How much will these fees be made to inflation?”
Stagflation, he said, was, on the other hand, “a big word … It means a truly corrosive inflation … and it means you have negative economic activity. You have a recession.”
Some economists were already seeing the economy progressing in this direction and reduced forecasts for the growth of the United States, if not worse.
“This is a recession producing turn, if these rates remain in their place,” said TS Lombard economist Steven Blitz. “The damage of (Trump) to reset trade can generate a worse and less healthy result.”
Markets sink
North markets -Americans quickly absorbed new risks. U.S. Treasury’s dollar and yields fell, and the main US stock exchange rates dropped at least 3% in the afternoon negotiation. The Technology Nasdaq, which was outside 5.8% at a time, the worst fall since the first days of pandemic in March 2020.
Investors in contracts related to FED’s reference interest rate seemed to think that weakened growth would be a more significant short -term influence, and Fed -promoted bets would reduce interest rates a complete percentage point this year compared to three -quarters of a percentage point that was seen before Trump’s tariff announcement.
The fall of stock markets, in particular, could lead to a decline among higher -income consumers, which have been a key support for the recent spending of homes.
“There is a substantial amount of uncertainty around trade and this level of uncertainty, of course, can weigh on the investment of homes and companies,” said Fed, Vice President Philip Jefferson on Thursday, adding that he does not want “excess” to new proposals.
“We are in a situation where it will be important to take our time and carefully think about its impact,” he said.
In separate comments, Fed Governor Lisa Cook said that inflation expectations had already marked more “even before the ads larger than expected on trade policy.”
The “increasing uncertainty”, he said, was an argument for the Fed to remain in hold.
The Fed at its meeting last month constantly maintained its policy rate, and officials projected two quarters cut this year in the midst of the perspectives for slower growth and highest inflation.
But Powell acknowledged in his press conference after he and his colleagues could have inertia inertia in his estimates, as they could little confident about the coming months.
With Trump’s announcement, his situation may have become even more complicated.
“ The increase in risks for both inflation and employment led to the Fed in an even greater bond, ” Krishna Guha, the ISI Vice President, Krishna Guha, wrote with the “ disorderly ” rates that raise fears among officials that public inflation expectations can begin to increase.
This could leave the Central Bank waiting to maintain a grip on the prices or reduce it quickly if the economy slides.
“At this point, the probability of non -cuts, two or three cuts or five more in a recession are approximately the same,” he said.
(Howard Schneider’s report; Andrea Ricci edition)
itstargetnews
