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Fed Sees GDP Hit From Trade War Outweighing Fleeting Inflation

  • Higher prices from proposed tariffs likely to be one-time rise
  • Growth and financial markets impact more important for rates
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UBP’s Kieran Calder expects three Fed hikes this year.Source: Bloomberg

A trade war would leave the U.S. Federal Reserve having to decide between battling weaker economic growth or rising prices. Which one it focuses on already looks pretty clear.

President Donald Trump’s administration has proposed tariffs on imported steel and aluminum, from which a number of U.S. allies would be exempt, and has threatened to slap additional measures on as much as $150 billion of Chinese goods. Higher and broader tariffs would raise the prices of those imports, potentially fanning U.S. inflation, while reducing economic activity by sapping confidence and tightening financial conditions.