Institution: The Federal Reserve (FED) will downplay the temporary inflation impact caused by tariffs.

According to a report by Jin10 on May 9, the Nordic bank SEB pointed out that as risks rise, the Federal Reserve is waiting for more clarity. Trade policies and economic outlooks are seen as extremely uncertain, and the Federal Reserve hopes to wait for clearer results. The market interprets this information as slightly hawkish and further reduces the likelihood of interest rate cuts at the June meeting. We agree with this market shift but expect that the Federal Reserve will ultimately focus on supporting economic growth and overlook the temporary rise in inflation. If long-term inflation expectations remain within controllable limits and align with inflation targets, the Federal Reserve should be able to overlook the temporary inflation shock caused by tariffs. There is also a possibility that the short-term impact of tariff uncertainty on the economy will exceed current expectations. However, for now, the Federal Reserve believes this move has a limited impact on the economy, and there are some signs of progress in trade negotiations. Inflation is still above target and is expected to start rising again due to tariffs.
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