Fed Faces Difficult Balancing Act In A Global Trade War

2025-04-09 10:10:00 ET

Summary

• The assumption is that a global trade war will curtail economic activity. But there’s also concern that sharply higher tariffs will raise inflation.
• That leaves the Fed with the task of choosing whether to prioritize inflation taming or supporting growth.
• Using the policy-sensitive US 2-year Treasury yield as a guide suggests the pressure for a rate cut is building. The 2-year yield fell to 3.74% on April 8, close to the lowest level since September.

Is inflation or slower growth, and perhaps recession, the priority? This basic question hangs over the Federal Reserve as it grapples with deciding how to respond to global trade war....

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