Capstone Holding Corp. lowers convertible note conversion price to $1.00
Investing.com -- Forecasts for rate cuts this year appear to be hanging by a thread after President Donald Trump rolled out tariffs that came sooner and were broader than many had expected, stoking the embers of inflation and raising the bar for rate cuts, according to economists at Morgan Stanley (NYSE:MS).
"Earlier tariffs and trade policy uncertainty mean upside risk to inflation, raising the hurdle rate for Fed rate cuts," Morgan Stanley said. "As a result, we remove our forecasted rate cut for March and leave only one 25bp rate cut this year at the June meeting."
Tariffs went into effect on trade with China, but were delayed on Canada and Mexico, the economists added. While tariffs on China were expected, they have come "earlier than we thought," the economists said, noting the risk to inflation.
The report arrived ahead of Trump’s warning of imposing a 25% import tax on all steel and aluminium exporting to the U.S. A move that would have hurt Canada. Trump also said there would be an announcement later this week about reciprocal tariffs on countries that tax imports from the US.
Against the backdrop of upside inflation risks from tariffs, Morgan Stanley stresses that its outlook for a just a single cut this year would be dominated by inflation. Market participants won’t have to wait to look for the next inflation update due later this week on Wednesday,
The data are expected to show the deflationary trend remains intact somewhat despite the boost to inflation from rising goods prices from the California wildfires, keeping the path, albeit a narrow one, to a rate cut alive.
"A smaller January effect and slower financial services inflation should help offset any temporary boost to goods prices from the California wildfires," the economists said.
"The path to rate cuts has narrowed greatly, but our outlook for inflation remains favorable enough to keep us thinking a rate cut in June (or perhaps May) is still more likely than not," they added.