Trump's tariff war threatens inflation! Fed Governor: Rate cut late last year should be "the last in the near future"

Here is the English translation: The Federal Reserve (Fed) passed a resolution in December last year with 11 votes in favor and 1 against to cut the interest rate by 1 notch, lowering the main lending rate to the range of 4.25% to 4.50%. However, with the possibility of the Trump administration implementing high tariffs, there are concerns that high inflation may resurface. Bank of America this week predicted that the Fed may have completed the last rate cut of this cycle last month. Is the rate cut in December last year the last one in the near future? It is worth noting that Fed Governor Michelle Bowman said on Thursday that she supported the rate cut last month, viewing it as the "final step" in the Fed's monetary policy adjustment. She emphasized that due to the rising inflation risk, a cautious approach should be taken in the future. In the prepared speech for the California Bankers Association, she stated: "We should also avoid assuming the future policy direction of the new administration. We should wait for more definitive information and try to understand its impact on economic activity, the labor market, and inflation." This is the first time Michelle Bowman has publicly spoken since it was reported that she is expected to become the Fed's Vice Chair for Supervision. The Trump administration is considering appointing her to replace Vice Chair Michael Barr, who announced his resignation this week. Bowman has strongly criticized Barr's regulatory approach in recent years, and if she takes on this position, it is expected that she will adopt a more lenient regulatory approach. Bank of America's latest forecast also points out that if the Trump administration's aggressive tariff policy is implemented, the Fed may temporarily pause rate cuts this year... Considering Trump's upcoming inauguration, the Fed may have already completed the "last rate cut" of this easing cycle last month. In terms of monetary policy, Michelle Bowman has expressed a hawkish stance, expressing concerns about the potential stagnation of inflation progress. She mentioned upside risks, including the "pent-up demand" released after the November 2022 presidential election, indicating that the stock market rally may make it difficult to further ease inflationary pressures, and the recent rise in the 10-year US Treasury yield also partly reflects market concerns about inflation risks: "I still prefer a cautious and gradual policy adjustment approach." Schmid Estimates 2% Inflation Target Won't Be Achieved Until 2026 Coinciding with Michelle Bowman's remarks, Kansas City Fed President Jeff Schmid also expressed caution about future rate cuts on Thursday, noting that the US economy has shown resilience and inflation is still above the 2% target level: "As inflation approaches the target and the economy continues to maintain momentum, I believe we are approaching a stage where the economy no longer needs tightening or stimulus policies, and monetary policy should remain neutral." In the current environment, Jeff Schmid said that interest rates may now be very close to the long-term level, and he supports gradually adjusting policies in the future, only making adjustments when data trends continue to change. He emphasized the strong performance of the economy, allowing the Fed to be patient. Jeff Schmid expects that it may not be until 2026 that the Fed can achieve the 2% inflation target. He pointed out that the final stage of reducing inflation to 2% may be the most challenging for monetary policy, and the Fed's quantitative tightening is to some extent in conflict with rate cuts. He expects the Fed to further reduce its balance sheet, but there is still uncertainty about the final scale of the balance sheet reduction: "I hope the balance sheet can be further reduced this year, and I hope the Fed can move towards a portfolio of only holding US Treasuries. We should minimize the impact on relative asset prices, which means gradually exiting mortgage-backed securities (MBS) holdings."