Hike or cut? Fed firepower in a trade war - TD Securities

"Tariffs are a stagflationary shock that creates a conundrum for the Fed, which has to decide whether policy should be tightened or eased in response,  |  24/05/2019 17:48

"Tariffs are a stagflationary shock that creates a conundrum for the Fed, which has to decide whether policy should be tightened or eased in response," point out TD Securities analysts.

Key quotes

"In the current circumstances, we strongly suspect that further escalation in protectionism will lead the Fed to consider easing policy. Increases in inflation should be relatively short-lived, while the hit to growth could be more persistent. In addition, risks are already skewed toward lower inflation and slower growth."

"The one exception would be if inflation expectations were to rise appreciably in response to tariffs: in that case, the Fed might be willing to consider hikes. However, we see such a scenario as unlikely in the current environment. Also, the Fed would almost certainly try to talk expectations back to its longer-run inflation target before considering any increase in policy rates."

"While we expect the Fed to ease should the trade war intensify, we don't expect the Fed to be preemptive in doing so. Rather, Fed officials are likely to wait until there are clear signs of economic weakness before reacting. This approach risks being too little, too late to prevent a deeper contraction in activity if markets were to react sharply and confidence were to stumble. As a result, an outright easing cycle appears more likely than a few "insurance" cuts, in our view."

Share

Popular News

Show More Popular News

Market Insight's Views

Market Insight analyses will provide both fundamental and technical comprehensions on FX
and other asset classes for Market Insight viewers

RISK WARNING

The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice.

If such information is acted upon by you then this should be solely at your discretion and GKFX will not be held accountable in any way.

  • ForexF
  • IndicesI
  • CommoditiesC
        Back

        Login to Market Insight Account

        Your Market Insight account gives you access to the tools that we offer our customers including our
        Technical Studies & Sentiment for your accounts.

        Forgot Password?

        Don't you have a Market Insight account? With a few easy steps you can easily register to Market Insight

        Create a Market Insight's Account

        Your Market Insight account gives you access to the tools that we offer our customers including our Technical Studies & Sentiment for your accounts.

        register_ty

        Thank you!

        Welcome to Market Insight family!

        You have succesfully completed the registration.
        We will send you an e-mail to give you some
        instructions and our Terms and Conditions!
        Our account representatives will be contacting you as
        soon as possible. If you have any further questions
        please do not hesitate to mail us via info@marketinsight.com