This week, US inflation takes center stage. Tomorrow, we’ll get the next Consumer Price Index (CPI) report. Waiting in the wings during the recent Federal Reserve meeting, member Michelle Bowman suggested three rate cuts this year. She added that today’s decision leaves the door open for more rate hikes in 2025. Recent events come out of multiple economic currents. These include changes in oil prices and federal tariffs, which are both likely to keep inflation elevated.
Bowman was asked why the upcoming CPI data will be particularly significant, given that it could help shed some glimpse into prevailing inflation trends. Energy inflation is likely to remain muted due to recent declines in oil prices. The Federal Reserve is closely observing the effect of these developments on aggregate inflation in the United States. Oil prices have dropped drastically, bringing hope for an end to the years of turmoil between the parties. That is particularly the case for the war that has sent global oil and gas supplies into disarray. If an agreement is finalized, it would likely lead to an easing of the sanctions. This would enable the unfettered transport of Russian oil and gas around the globe, enormously affecting global energy prices.
At the same time that a tariff-fueled rebound would increase inflation in the US, Bowman hinted at her colleagues’ potential concerns. Recent reports indicate that the US government may take a 15% cut from sales of Nvidia and Arm chips to China. This action marks a considerable change in trade policy. That’s in addition to former President Donald Trump’s expected tariffs on US companies, which some predict would further stifle inflation projections. These tariffs have a grossly disproportionate impact on small businesses. They want to use their access to the market to raise revenues, in essence signaling a new era of taxation for the Trump administration.
The Federal Reserve’s dual mandate is to promote maximum employment and stable prices. This mandate has been an enormous driving force in the overall US economic policy. With inflation still top of mind, here are some outside pressures the Fed will need to consider that may impact its decision. The possibility of increased prices from tariffs complicates an already complex economic terrain.
Bowman’s remarks on future rate cuts represent a continued strategy within the Federal Reserve to…If inflation starts to trend in that direction, it may grant the Fed the space it needs to keep interest rates lower for longer. In particular she called out three increases projected in 2025. This indicates a more dovish approach to balancing the pace of economic growth and addressing persistently high inflation.
The dollar dropped suddenly over the past few days. This sharp drop occurred as global markets reacted to the growing outlook for a faster return to lower US interest rates. This drop is a reflection of where investors are placing their bets on what will happen with Fed policy and inflation in the future. That situation develops, both south of the 49 th parallel and around the globe, markets will be impacted by these economic changes.