On April 23, CICC research report considered two scenarios: first, if negotiations between the United States and its trading partners lack substantial progress, and the effective tariff rate remains high after 90 days, the income effect would dominate, and weakening economic demand might prompt the Federal Reserve to start cutting rates from July, with a potential cumulative rate cut of 100 basis points for the year.
In the second scenario, if negotiations yield results and tariffs are reduced, the substitution effect would dominate with a relatively mild demand impact, but inflation pressure would be more persistent. The Federal Reserve might delay its easing pace, potentially making only a small rate cut in December. For the market, although monetary easing would come earlier in the first scenario, such "recession-style" rate cuts would reflect deteriorating economic fundamentals and could actually suppress risk assets. (Jin Shi)
