How negative will the economic impact of its chaotic policies Trump government for duties; Markets seem to believe that if the president does not take steps to limit it, the federal bank will do so. We have the feeling that markets are overly complacent.

The highest duties -such as those imposed by Trump on Canada, China and Mexico– They affect both inflation and growth. Import prices are increasing, giving domestic producers to increase their own. The shock burdens consumer costs, while the uncertainty about the level and perseverance of duties – as well as retaliation – is forcing businesses to postpone the recruitment and investment they have planned as they have an uncertain environment.

So far, markets seem to believe that the impact of growth will dominate. While the shares have fallen sharply, the expectations that the Fed It will reduce interest rates have risen, suggesting the belief that the price increases caused by duties will not limit the central bank’s movements. On the contrary, according to logic, the Fed will judge inflation as transient, reducing interest rates to support the economy.

Unfortunately, this case is problematic in two points:

Firstslowing growth will not cause so much relaxation in the labor market and downward pressure on wages as expected.

Secondduty -related price increases will be difficult for the Fed to ignore if they raise inflation expectations. This was not a problem during Trump’s first term, when his policies were less extreme and inflation was below 2%. This time, the size of duty increases is multiple. Worse still, they could further delay the achievement of the central bank’s long -term goal to reduce inflation in the 2%target.

The combination of smaller growth potential, higher prices and higher inflation expectations does not forecast good news for markets. Lower growth will burden profits and undermine shares. Fed’s reluctance to reduce interest rates will undermine bonds. More uncertainty and risk will undermine both.

This reduced outlook will be reflected in the upcoming Fed’s upcoming financial forecasts, which will be made public after next week’s monetary policy. Forecasts to increase production will decrease, inflation will increase, but the course of unemployment rate will not change much as the Development of the workforce slows down with recruitment. The median prediction for two interest rates by 25 basis points in 2025 will probably remain. Many officials will have to change their minds to shift the median price to a single interest rate reduction. This seems unlikely in a time of great uncertainty and political sensitivity.