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Investing.com - Analysts at Morgan Stanley (NYSE:MS) have scrapped their prediction that the Federal Reserve will cut interest rates in June, citing the potential impact of U.S. President Donald Trump’s tariffs on price growth.
The move comes after the Fed left interest rates unchanged at a range of 4.25% to 4.50% at its latest policy meeting in March, flagging in part concerns over the uncertain outcomes of Trump’s policy changes such as tariffs.
In a note to clients on Thursday, the Morgan Stanley analysts said that the import surcharges could drive up prices for consumers, a result which may dent the argument for the Fed to roll out rate cuts.
Up until its January gathering, when it also kept rates steady, the central bank had embarked on a run of three straight borrowing cost reductions.
The Morgan Stanley analysts said they now expect "tariff-induced inflation" to "keep the Fed on the sidelines" in the months ahead.
Trump announced his broadest slate of tariffs to date on Wednesday, saying he would slap a baseline 10% duty on all foreign imports into the U.S. and impose greater levies on several longstanding trading partners in a bid to respond to perceived unfair trade practices.
China, the European Union, India, and Japan are among a number of countries set to face elevated so-called "discounted reciprocal" tariffs that aim to address foreign charges and other non-trade barriers. The White House considers these nations to be "bad actors" on trade.
At an event at the White House Rose Garden, Trump revealed a fresh 34% tariff on China, stacking on top of a 20% surcharge he already put in place earlier this year. Wedbush Securities analyst Dan Ives warned that tech stocks would likely be under pressure due to these tariffs.
Imports from the EU, another frequent target on Trump’s trade-related ire, face a new 20% tariff, while goods exported from India into the U.S. will have a 26% tariff placed on them. A 24% tariff will imposed on items from Japan as well.
The 10% baseline tariff will go into effect on April 5, while the higher tariffs will begin on April 9.
Trump and White House officials have argued that these moves are necessary to address trade imbalances, bolster government revenue, and reshore lost manufacturing jobs.
However, many economists have warned that the actions will drive up prices and weigh on growth, and businesses have complained that uncertainty around the tariffs has made planning out their operations difficult.