Daly Downplays Tariff Impact, Emphasizes Possible Mild Price Response
San Francisco Fed President Daly stated in a recent public address that although the US is set to implement new tariff measures, the impact on overall inflation might not be as severe as anticipated. She noted that companies are distributing or internally absorbing costs when facing rising expenses, thereby weakening the eventual transmission of tariffs to end consumers, reducing the likelihood of widespread price increases.
Daly emphasized that the path of tariff impact on inflation involves multiple stages through companies, supply chains, and consumers. The actual impact is often diluted by profit compression or shared negotiation, making the large price spikes anticipated by the market unlikely to fully materialize even when tariffs are officially implemented in August.
Rate Cuts This Year Still Seen as an Appropriate Option
Regarding future monetary policy direction, Daly reiterated her inclination that two rate cuts this year remain the most likely outcome, although she acknowledged the uncertainty in forecasts. She believes the US economy is currently performing steadily, with growth and consumption trending moderately, but without showing significant signs of slowdown, providing flexibility for monetary policy.
Currently, there is a noticeable division within the Fed regarding whether to cut rates and by how much. Meeting minutes indicate that some officials believe tariffs might cause sustained price pressures, while others view the tariff impact as a short-term price adjustment with limited influence on long-term inflation expectations.
Daly's statements further highlight the Fed's continued support for cautiously adjusting monetary policy to buffer the economy amidst ongoing growth.
Tariff Policy Direction Becomes a Key Market Focus
The Trump administration's recent announcement of new import copper tariffs taking effect on August 1st, along with potential additional unilateral tariff measures, has sparked market concerns regarding changes in supply chains and cost structures. The scope and specific implementation of tariffs will directly impact prices and market sentiment over the coming weeks, becoming a crucial metric for gauging the timing of rate cuts.
St. Louis Fed President Bullard noted it is still too early to determine whether the tariff impact is temporary or persistent, predicting that data from the third quarter of this year and early next year will more clearly reveal the full extent of tariff effects.
With the Trump administration leaning towards implementing tariffs, the Fed remains cautious in observing the dynamics between inflation and growth, while the market closely watches whether the rate cut window will open in August or September.
Market Focuses on Interest Rate Path and Potential Risks
While Daly leans towards two rate cuts this year, JPMorgan CEO Dimon cautioned the market not to overlook the possibility of rate hikes, suggesting that the likelihood could be higher than market expectations, around 40%-50%.
In the short term, the market largely anticipates that a rate cut in August is unlikely, mainly because the price changes and economic impacts following the tariff implementation have not fully emerged, and policy uncertainty remains high. However, if the tariff impact is moderate and inflation continues to decline, there remains a significant possibility for opening a rate cut window from September to the end of the year.
Investors should continuously monitor key US inflation data such as CPI and PCE, as well as corporate earnings and labor market performance, to assess the timing and strength of the Fed's policy path within the year.
