Federal Reserve rate cuts: Tariff extension signals tough road ahead in US-China talks: Peter Cardillo

“Obviously, the markets are beginning to realise that every time Trump blinks or changes his mind, it just adds another big question mark. As for today’s market, I don’t think this move will have much impact. The major focus will be on the inflation data,” says Peter Cardillo, Spartan Capital Securities.

What do you make of the latest announcement from Trump, where he has extended the deadline to impose additional tariffs on China by 90 days? What does this mean for other economies, especially India, where additional tariffs have been levied?Peter Cardillo: Well, it basically puts everything back on hold. It gives the markets more time to assess what may or may not happen with China and India as well. It’s Trump flipping again, which indicates that China is a tough negotiator. In one respect, that’s good news. In another, it’s not—because we still don’t know how this is going to end. Obviously, the markets are beginning to realise that every time Trump blinks or changes his mind, it just adds another big question mark. As for today’s market, I don’t think this move will have much impact. The major focus will be on the inflation data.

You just mentioned that the major focus will be on the inflation data due later today for the US markets. Earlier, you said that even a baseline tariff of 10–15% would be inflationary for the US. But now, tariffs—nearly 40% in some cases—have come into play. How do you see all this panning out, especially for the US consumer, who will ultimately pay more if higher import duties are imposed?Peter Cardillo: Absolutely. Even if you get a baseline inflation impact of 10%, and so far, it has been around 15%, let’s assume the average will be somewhere between 10% and 15%—it’s still inflationary. It’s not going to send inflation through the roof, but it will keep it elevated. And once again, we’re going to see that in today’s numbers. We’re expecting headline inflation to rise by 0.3%, and the key will be core inflation, which we also expect to increase by 0.3%. On a yearly basis, it’s very possible that core inflation could tick back up to 3%. That would confirm that tariffs are keeping inflation elevated and that the American consumer is the one paying the price.

Since we’re talking about inflation, in this backdrop, what are you expecting from the Federal Reserve’s meeting in September? There are hopes that the Fed could cut rates—possibly twice—for the rest of this calendar year. What’s your estimate?Peter Cardillo: We will get rate cuts—there’s no doubt about that. The economy has slowed, and it’s slowing rather quickly, as we saw with the employment numbers. Of course, it’s not a good combination to see the economy slow while inflation rises—that’s a sign of stagflation. But they will act. I think we’ll get some insight into this at the Jackson Hole meeting on August 21–23. If the September labour market data comes in much weaker—or shows negative jobs growth—the Fed may be forced to cut by 50 basis points in one go, instead of two 25-basis-point cuts. That could be enough for the rest of the year. However, there’s another issue: do the markets really trust the macro data?