Fed Rate Hikes Looming Amidst Inflationary Pressures from Tariffs
The robust US economy, propelled by robust stock prices, technological advancements, and defense spending, could ignite inflation, prompting the Federal Reserve to consider additional rate hikes. This warning comes from Torsten Slok, chief economist at Apollo Global Management.
Tariffs Fuel Inflation
Trump's tariffs on steel, aluminum, and Chinese imports are exacerbating inflationary pressures. Economists estimate that the core personal expenditures price index (PCE) could rise by 0.4% solely from the steel and aluminum tariffs. Deutsche Bank projects inflation could exceed 3.5% if tariffs on Mexico and Canada materialize.
Market Blindsided
Slok believes the market has not fully factored in the potential for rate hikes. Goldman Sachs' chief US strategist, David Kostin, notes that rate hikes could force markets to revise profit estimates downward by 2-3%. This would impact company margins and potentially reduce sales volumes.
Consequences of Tariffs
Tariffs could have wide-ranging implications for corporate earnings and the S&P 500. Firms may absorb higher input costs, squeezing profit margins, or pass on the costs to consumers, reducing sales. They may also negotiate with suppliers to mitigate tariff impacts.
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