90-day pause on Trump tariffs set to expire soon. Can renewed trade barriers complicate US Fed's rate cut path?

Mint

14 hours ago

US Fed Rate Cut: US President Donald Trump's tariff policies have added a layer of complexity to the Federal Reserve's rate-cut deliberations, as the US central bank remains concerned about potential inflationary fallout from higher tariffs.
Now, ahead of the expiry of the 90-day pause on tariffs this week on July 9, Trump said on Sunday that the US is close to finalising several trade agreements in the coming days and will notify other countries of higher tariff rates by July 9.
Trump in April announced a 10% base tariff on most countries and higher "reciprocal" rates of up to 50%.
Trump also threatened an extra 10% tariff on countries aligning themselves with what he called the anti-American policies of the BRICS group of developing nations.
While no substantial trade deals are in place yet, the concerns for the economy continue to linger, further impacting the US Fed's rate cut decision.
The US Fed Chief Jerome Powell has already communicated that the central bank will 'wait and learn more' about how these tariffs are filtering into higher inflation before they start to focus on interest rates. Other Fed officials also say that the unclear trade policy and the chance that adding or bringing back higher fees could push prices up again means they will be careful and rely on data before cutting rates.
Pranay Aggarwal, Director and CEO of Stoxkart said the approaching expiry of the 90-day pause on Trump-era tariffs could reignite trade tensions, especially between major economies like the US and China.
"If renewed trade barriers are introduced, we may see a ripple effect on global inflation, supply chains, and investor sentiment. For the US Federal Reserve, this adds another layer of complexity; rising trade-related inflationary pressures could delay or limit the scope of planned rate cuts, as the Fed continues to balance between cooling inflation and supporting growth," Aggarwal added.
Palka Arora Chopra, Director, Master Capital Services believes the reimposition of trade barriers by the US, and may further postpone any rate cuts. Delayed rate cuts also don't bode well for emerging markets (EMs) like India, as higher US interest rates curb FII inflows into EMs.
In the last policy meeting, the US Fed along expected lines kept the rates unchanged at 4.25-4.5%, while the Fed's dot plot continued to signal two rate cuts for 2025.
The dot plot is a chart published by the US Fed that shows the FOMC's future path on interest rates. Last week, data showed US job growth was unexpectedly solid in June, further easing pressure for the Fed to cut rates.
Minutes from the US Fed's last meeting due later this week could shed more light on the US central bank's rate cut path.
Indian stock market has traded on a backfoot ahead of the tariff pause deadline. On Monday, July 4, both BSE Sensex and NSE Nifty ended with small cuts as investors continued to stay on the sidelines.
Analysts believe From an Indian market perspective, such developments often translate into increased volatility.
"Additionally, any global uncertainty tends to impact foreign institutional investor (FII) flows, which are a key driver of Indian equity markets. While India remains structurally strong, short-term knee-jerk reactions cannot be ruled out if global trade disruptions escalate," Aggarwal said.
Meanwhile, commenting on the impact of a possible US-India trade deal, Chopra said that the larger impact on Indian stock markets hinges upon the outcome of the trade negotiations: a deal would sell well, while failure would certainly have a spillover effect on exporters and general market sentiment.
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