It is expected that this week, the US Federal Reserve (Fed) will have its final meeting this year, but it is unclear whether the Fed will continue to cut operating interest rates.
The American people are facing inflation at a higher level than expected
The Fed is in a dilemma
The reason for the forecast just mentioned is because newly released data shows that US inflation in November was 2.7% compared to the same period in 2023. Immediately after the inflation data were announced, currencies Currencies in Asia have increased in value compared to the USD. According to the sheet Financial Timescompared to a basket of currencies including the British pound and Japanese yen, the USD has weakened by 0.15%.
Recently, sheet The New York Times There is an analysis article related to the above developments. Accordingly, in the process of operating the base interest rate after the pandemic, the Fed achieved a miracle in that the inflation rate decreased but the economy did not fall into recession. However, although current inflation has decreased quite a lot compared to its peak of up to 9% in 2022. Thanks to that, in September, the Fed cut the operating interest rate by 0.5 percentage points, while level 4.75 – 5%. Analysts expect that at the next meeting, the Fed will continue to cut operating interest rates by another 0.5 percentage points, to 4.25 – 4.5%.
However, the trend could be reversed because the Fed is facing a dilemma. Specifically, the Fed has the dual mission of keeping inflation low while maximizing employment, but has only one main tool: operating interest rates. With current developments, if the Fed continues to cut operating interest rates, it may be difficult to bring inflation back to the target level. On the contrary, if operating interest rates are not cut, it will be difficult to create more jobs because the market is not stimulated to grow. Therefore, the Fed is facing a scenario of having to choose which target.
Meanwhile, according to the newspaper Market Watch The Fed may still receive positive signals. Specifically, although prices have increased rapidly in the past few months, the three main drivers of inflation show signs of decreasing in the coming months: Housing costs, service prices and labor costs. The biggest problem is housing, because this is the biggest expense for most families and is the main cause of high inflation over the past 2 years. Therefore, one option of the Fed may be to cut operating interest rates by 0.25 percentage points, not 0.5 percentage points as expected.
Difficult for Mr. Trump
Not only does it put the Fed in a dilemma, the recent increase in inflation also creates a challenge for President-elect Donald Trump’s intentions.
Recently, Mr. Trump confirmed that he will increase tariffs on goods from Canada, Mexico and China. Mr. Trump threatened to impose a 25% tariff on goods from Mexico and Canada, as well as an additional 10% tariff increase on Chinese goods. All three countries are leading trading partners, providing many important goods to the US. Therefore, if Mr. Trump immediately increases tariffs on goods from these three countries and many other economies, it will cause prices in the US to escalate, because shifting the production chain to this country is unlikely to become a reality soon. realistic.
In a recent survey conducted by Reuters/Ipsos and published on December 13, the majority of people participating in the survey did not think that increasing import taxes was a good idea and were worried that it would cause commodity prices to increase. High. Only 29% of respondents in the poll agreed that “the US should charge higher tariffs on imported goods even if prices increase”. On the contrary, 42% disagreed, and 26% said they did not know, and the rest did not answer the question. Besides, only 17% of respondents agreed with the view that they would personally be better off when the US charged taxes on imported goods.
If the goal is to threaten to increase tariffs to force China to increase its purchases of US goods to balance trade, then Mr. Trump will not easily succeed. During his first term, by increasing tariffs, Mr. Trump made China commit to increasing purchases of American goods, but in reality, Beijing still did not buy enough as committed.
According to statistics, when Mr. Trump took office for his first term in 2017, the federal government’s budget revenue from customs was 34.6 billion USD. By 2019, this number increased to 70.8 billion USD. Although the increase is very high, this number is only equivalent to about 0.3% of the current US GDP. Considering this fact in the current context of rising inflation, analysts are concerned about Mr. Trump’s plan to increase taxes on imported goods.
