Durham Abric, head of U.S. inflation at Citadel Securities, said the Fed’s path of rate cuts likely won’t be disrupted by the incoming Trump administration’s protectionist stance.

“The Fed will likely ignore the impact of tariffs because monetary policy has little impact on temporary, tariff-driven inflation,” Abric said in an interview on Wednesday.

Former U.S. President Donald Trump imposed punitive tariffs on U.S. imports during his first term, and he has made clear he will do so again when he takes office in January. While that is likely to push up consumer prices, Abric said Fed Chairman Jerome Powell and his team will be eager to avoid overreacting to any potentially short-lived economic impact.

After all, the first-term tariffs had limited impact on overall prices, he said. While the new tariffs could put temporary pressure on prices, Abric doesn’t think they will have a major impact on Fed policy.

“Given the Fed’s rate-cutting bias, the recent rise in real yields on the front end may be coming to an end, however, longer-term yields may continue to rise as expectations for stronger growth and sticky inflation build,” Abric said.

Since mid-September, expectations for the Federal Reserve’s policy rate have risen much faster than expectations for inflation, pushing expectations for the terminal real interest rate to nearly 1.25%, the highest level since July.

Abric's comments came after key inflation data on Wednesday matched expectations and sent U.S. Treasury yields lower. Long-term interest rates remain elevated since the Nov. 5 election.

Economists expect higher tariffs to pose upside risks to inflation, but the overall impact on consumer prices will depend in part on whether workers can negotiate higher wages and reinforce the inflationary effect. On the other hand, a weak labor market will curb demand and could offset the impact of tariffs.

The Fed cut interest rates by a quarter point last week, and Powell said the election would not have “any impact” on the central bank’s short-term decision-making. He said it was too early to judge the timing and substance of any potential fiscal policy changes.

But that hasn’t completely allayed traders’ concerns, with companies such as Stanley Black & Decker Inc. and Whirlpool Corp. already considering raising prices in response to the tariff hikes.

Article forwarded from: Jinshi Data