Tariffs raise recession risk, Fed's ability to lower rates in US: Fitch

ANI April 6, 2025 195 views

Fitch Ratings has issued a stark warning about the potential economic consequences of the Trump administration's new tariff policy. The rating agency predicts slower US economic growth and increased consumer prices as a result of broad-based tariff increases. These tariffs are expected to squeeze real wages and potentially drag down business investment. The analysis suggests the Federal Reserve might become more hesitant about implementing future interest rate cuts due to these economic pressures.

"Higher prices will squeeze real wages, weighing on consumer spending" - Fitch Ratings
New Delhi, April 6: Reciprocal tariffs imposed by the US significantly raise risks for a recession in the US and constrain the US Federal Reserve's ability to lower interest rates further, Fitch Ratings said in a note.

Key Points

1

Tariff hikes likely to reduce US economic growth in 2025

2

Consumer prices expected to rise significantly

3

Fed may become cautious about future rate cuts

Post the higher-than-anticipated tariffs imposed the US administration, the rating agency projected that US growth in 2025 is likely to be slower than the 1.7 per cent that it had projected in March.

According to Fitch Ratings, tariff hikes will result in higher consumer prices and lower corporate profits in the US.

"Higher prices will squeeze real wages, weighing on consumer spending, while lower profits and policy uncertainty will act as a drag on business investment," Fitch said.

"Upward pressure on goods prices from tariffs - in the context of a recent large jump in US households' medium-term inflation expectations - means the Fed is likely to become more cautious about further rate cuts in the near term."

Fitch expects these effects will likely outweigh the benefits US companies might gain from increased protection against foreign competition.

It further added that the broad-based nature of the tariff hikes constrains the scope for trade diversion, underlining the likelihood that the trade war will have adverse effects all round.

Since assuming office for his second term, President Trump has reiterated his stance on tariff reciprocity, emphasising that the United States will match tariffs imposed by other countries, including India, to ensure fair trade.

On April 2, the US President issued an executive order on reciprocal tariffs, imposing additional ad valorem duties ranging from 10 per cent to 50 per cent on imports from all trading partners. The baseline duty of 10 per cent will be effective from April 05, 2025, and the remaining country-specific additional ad valorem duty will be effective from April 09, 2025.

The additional duty on India is 26 per cent.

Reader Comments

M
Michael T.
This tariff war is going to hurt everyone in the long run. Higher prices on everyday goods will hit working families hardest. The Fed being handcuffed on rate cuts just makes a bad situation worse. 😕
S
Sarah K.
I appreciate the analysis but wish the article had more perspectives from small business owners. As a boutique owner who imports goods, these tariffs could put me out of business. The 26% on India is brutal for my supply chain.
J
James L.
Finally someone calling out the real economic consequences! The stock market might be up now, but when consumer spending drops and business investment slows, we'll all feel it. Fed's hands are tied at the worst possible time.
A
Aisha R.
Interesting read! I didn't realize how tariffs could actually limit the Fed's options. Makes me wonder if policymakers fully considered these second-order effects before implementing them. 🤔
D
David P.
While I understand the protectionist argument, history shows trade wars rarely benefit anyone long-term. The 2018 tariffs should've been lesson enough. Now we're doubling down right when the economy needs flexibility.
E
Emma S.
The timeline on these tariffs (2025) gives businesses some runway to adjust at least. But the uncertainty alone is problematic - how can companies plan investments when trade policy keeps shifting?

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

Tags:
Trump Tariffs US Economy Fitch Ratings Economic Recession Trade Policy
You May Like!