JPMorgan: Trump's new tariff policy may increase inflationary pressure, uncertainty remains for Fed rate cut by year-end

After the latest October Consumer Price Index (CPI) was released, David Kelly, Global Chief Strategist at J.P. Morgan, recently stated in an interview that the Federal Reserve (FED) may consider a slight rate cut in December, but faces uncertainties such as upcoming tariff policies and fiscal plans.

CPI Shows Slowing Growth, Uncertainty on Fed Rate Cut in December

In October, the overall Consumer Price Index (CPI) in the United States rose by 2.6% compared to the same period last year. The core CPI, which excludes food and energy, showed a year-on-year increase of 3.3%, in line with market expectations. Kelly pointed out that the Federal Reserve (FED) is still observing subsequent data such as CPI and PCE, and Fed Chairman Powell has previously stated that policy decisions cannot be based on a single data point. Kelly believes that the market is already anticipating another slight rate cut by the FED, but there are still many data points to consider.

Trump Strengthens Tariff Policies, Global Economic Slowdown Due to "Trade War"

Kelly pointed out that the new tariff policies of the Trump administration may affect market inflation expectations and have a greater impact on low-income households. He also warned that the "trade war" could lead to a global economic slowdown and increase inflationary pressures. Escalating tariffs could raise prices of imported goods, affect consumer spending, and further slow down global trade.

New Fiscal Plan Could Trigger Long-Term Inflation, Fiscal Deficit Peak Expected in 2026

Kelly further stated that the market expects these fiscal stimulus plans, such as tax cuts, to be gradually implemented in the coming years and have a significant impact on the economy by 2026. He emphasized that a larger fiscal deficit may emerge by then, leading to increased long-term inflationary pressures.

Kelly believes that the market is gradually digesting these factors that may affect the U.S. economy in the future, especially for investors holding a large amount of U.S. stocks in their portfolios, this is a warning signal that needs attention.

Corporate Tax Rates May be Lowered Again, Investors Need to Watch Fed Policy

Despite rising inflation risks, Kelly also pointed out that the market is eagerly anticipating the Trump administration to further lower the corporate tax rates for U.S. production companies, expected to decrease from the current 21% to 15%. Kelly stated that such tax cuts could significantly boost corporate earnings and potentially drive the performance of U.S. stocks.

However, he also mentioned that as the Republican party has secured seats in both the Senate and the House with a "slight margin," the passage of the tax rate reduction policy remains to be seen. Facing many uncertainties, Kelly also reminded investors to closely monitor changes in Fed policy to balance their portfolios in response to risks.