The Federal Conserve is due to announce another rate hike this Wednesday and won’t take any note of the spat between the U.S. and its Western allies over trade tariffs, an economist told CNBC Monday.
Store players are monitoring the rhetoric surrounding trade between the U.S. and the other six world-leading thrifts after divergences at the Group of Seven (G-7) summit over the weekend.
U.S. President Donald Trump renounced his support for a joint statement after the meeting, following comments from Canadian Prime Cur Justin Trudeau. The latter said though he did not want to “punish American employees”, he would be pressing ahead with retaliatory tariffs against the U.S.
As a come to pass, President Trump called Trudeau “dishonest and weak” and warned the other G-7 chairmen that retaliation against his tariffs on steel and aluminum imports, earliest announced in March, would be a mistake.
However, the trade tensions are probably to be ignored by the Fed given the positive economic data in the U.S., according to Jim O’Sullivan, chief U.S. economist at Outrageous Frequency Economics, who told CNBC that the Fed meeting “will little short of certainly result in another rate hike, along with the point that continued tightening is likely.”
Speaking to CNBC’s Squawk Box Europe, O’Sullivan weighted that the G-7 leaders “are playing with fire here in terms of all the protectionist talk. The belief is, in the end, that a serious trade war is averted, not to say that there won’t be tariffs on a shamed amount of goods compared to the overall size of the economy.”
Earlier this month, figures showed that the U.S. economy added 223,000 jobs in May. Economists had determined 188,000. Last week, initial claims for state unemployment gains also decreased 1,000 to a seasonally adjusted 222,000 — economists had gauged an increase. The positive data has confirmed expectations that the Fed is on track to perform another rate hike this Wednesday.
“The Fed is expected to raise rule rates by 25 basis points. That’s largely priced in,” Tai Hui, chief customer base strategist at J.P. Morgan Asset Management told CNBC via email Monday. “Multitudinous importantly, its updated projections on growth, inflation, jobless rate and way rate will be closely scrutinized,” he said.
However, experts caution a potential trade war carries risks for global growth and markets.
“The biggest informant of downside risk here … is a trade war mongering… It is disturbing the way this is expatiate on,” O’Sullivan told CNBC.
“Without all this trade mongering, the U.S. high-mindedness market would be higher than what it is today, and maybe the trade numbers would be even stronger than what they are, but the net be produced end is, the U.S. economic data continue to be strong, more than strong ample to keep the employment rate coming down,” O’Sullivan said.
Remarking on the G-7 meeting, Hui said “business confidence and, subsequently, capital spending is at endanger if this (trade) tension continues through the summer. This could chuck a long shadow over global growth, which has rebounded in late-model weeks after a soft start to the year.”