MARKET OUTLOOK - Trump's Policies Won't Disrupt Fed's Rate Path

Forex - Durham Abric from Citadel Securities argued that the protective stance expected from the Trump administration would not disrupt the Fed's interest rate path.

Abric stated, "The Fed is likely to disregard the effects of tariffs because monetary policy will have little impact on temporary, tariff-induced inflation." Former President Donald Trump, who imposed punitive tariffs on U.S. imports during his first term, clearly indicated that he would do so again when he took office in January. While this poses a risk of increasing consumer prices, Abric mentioned that Fed Chair Jerome Powell and his team would be willing to avoid overreacting to potentially short-lived economic impacts.

"Ultimately, the first term tariffs had a limited effect on overall prices," Abric noted, adding, "While new tariffs may create temporary pressure on prices, he does not believe that tariffs will have a heavy effect on central bank policy. Given the Fed's inclination towards cuts, the pace of the recent rise in front-end real yields may be waning. However, longer-term yields could continue to rise with expectations of stronger growth and sticky inflation."