In the evening of Taiwan time (1/8), sources pointed out that Trump will announce a national economic emergency plan after taking office, which means an increase in taxes of 10~20% on imported goods. In addition, the December Federal Reserve meeting decided to lower the benchmark interest rate to a target range of 4.25%-4.5%, and the rate cut expectations were reduced to two from four in September. It is obvious that the Federal Reserve is worried about inflation and may slow down the progress of interest rate cuts. In this regard, Bank of America economist Aditya Bhave believes that if the national economic emergency plan is announced, the last interest rate cut of this cycle may have been completed.

(Bitcoin fell! The Fed is worried about inflation and is cautious about cutting interest rates, alluding to the impact of Trump’s immigration and tariff policies)

Bank of America economist: The Fed may not cut interest rates further if a national economic emergency plan is announced

Although the tariffs are not paid directly by U.S. consumers, some of the costs will be passed on in the form of higher commodity prices. This could lead to higher inflation, at least in the short term. Therefore, although Trump is promoting the national economic emergency plan out of the stance of protecting the U.S. economy, the short-term result may be rising prices. The Federal Reserve is worried about inflation and therefore slows down or even stops its more loose monetary policy.

Bank of America said the aggressive tariffs imposed by the Trump administration could force the Federal Reserve to adopt a standstill mode due to inflation concerns. Aditya Bhave, an economist at the bank, further said: "Signs of sticky inflation are becoming more and more obvious. Considering the timing of the rate cut, the Federal Reserve may have made the last rate cut of this cycle."

"Inflation is a concern even before we consider fiscal easing or tariffs. These policy changes will pose an upside risk to the Fed's core PCE forecast (which we see at 2.8% by the end of 2025)," Aditya Bhave He said he was referring to the personal consumption expenditures price index, which is the inflation balance index that the central bank cares about most. As a conclusion, he believes that if significant tariffs are announced soon after taking office, the Fed may not cut interest rates further.

With 10-year Treasury yields gradually rising, is the cycle of rate cuts over?

The Fed's December meeting resolution predicted two more rate cuts in 2025, compared with the September forecast of four. However, Fed Chairman Jerome Powell said that only some members considered the potential impact of Trump's policies when making their forecasts.

In addition, U.S. Treasury bond yields have also gradually risen. The 10-year Treasury bond yield was about 4.697% on Wednesday, compared with about 4.178% at the end of November. This data is also one of the indicators that traders pay attention to.

 

This article What will be the impact of Trump’s national economic emergency plan? Bank of America economists warn: The cycle of interest rate cuts may be over. First appeared on Chain News ABMedia.