ANZ: Fed likely to cut rates further even if tariffs stoke inflation

The Trump administration has confirmed that tariffs on imported goods from Mexico and Canada will take effect on March 4, and reciprocal tariffs will take effect on April 2.

Brian Martin, chief economist at ANZ Bank, said that if the impact of tariffs remains unchanged for the rest of the calendar year, it could keep the core PCE inflation rate in the United States at around 2.6%-2.9%, compared to the pre-tariff estimate of 2.4%.

He added that these estimates do not take into account possible second-round effects or offsetting softness in demand. Nevertheless, Martin said the Fed may remain patient and focus on one-time price increases. ANZ Bank continues to believe that the Fed will cut rates by another 75 basis points in this cycle and resume cutting rates in the second half of 2025.