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Investing.com -- Nomura has predicted that the reciprocal tariffs imposed by the U.S. will hinder economic growth and increase inflation, causing the Federal Reserve to start reducing interest rates from the end of this year.
The European Central Bank (ECB) may also cut rates as early as this month, according to the brokerage.
On Wednesday, U.S. President Donald Trump implemented extensive tariffs on numerous countries, escalating the risk of a worldwide trade war and increasing concerns of a global economic slowdown, or even a recession.
Nomura described the tariffs as "worse than feared" and has subsequently lowered its U.S. GDP growth estimate for the quarter to 0.6% from 1.5%. The brokerage has also increased its forecast for year-end core PCE, the Fed’s preferred inflation gauge, to 4.7% from 3.5%.
Nomura now expects the Fed to cut rates in December, bringing the policy rate to 4.125%. This will be followed by two further 25 basis point cuts in the first quarter of 2026. The brokerage had previously anticipated the central bank to maintain rates at 4.25%-4.5% until the second quarter of 2026.
Nomura also predicts that the ECB will need to act more swiftly than the Fed, as Trump’s tariffs will effectively raise duties to 20% for the European Union. The brokerage has forecast uncertain inflation for the region and has cut its growth forecast by 20 basis points.
Consequently, Nomura now anticipates the ECB will cut rates in April and June, resulting in a terminal rate of 2.00%, down from the previously predicted 2.25%.
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