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DON'T BANK ON FED CUTS AFTER TARIFFS - COLUMBIA THREADNEEDLE CIO

Some investors reckon the bazooka of higher-than-expected tariffs U.S. President Donald Trump unleashed on Wednesday could be the starting point for a global growth scare that drives the U.S. Federal Reserve to rapidly cut interest rates.

That has driven a rush into the perceived safety of government bonds so far, but Columbia Threadneedle Investments CIO William Davies said the risk of higher consumer prices could keep central banks indecisive and cut the debt rally short.

He told Reuters he'll be a bit wary of being optimistic about too many Fed rate cuts.

"If you look at those tariffs, if you look at the uncertainties, that has put a brake on investment and that brake on investment means growth is not necessarily going to be higher than was originally expected. In fact, its going to be lower."

"It makes the outlook for government bonds more attractive given the pressure on economic growth, but that presupposes any inflation that we see is going to be transitory."

"The argument is more nuanced than that for two reasons."

"The U.S. Federal Reserve, he said, remained sharply focused on consumers' inflation expectations, which had been rising. Trump's proposed use of tariff proceeds to fund tax cuts and deregulation could also insulate the U.S. economy from some trade war damage, adding:

"Tariffs bring about higher prices. Now it's to be seen whether or not that then transitions to other areas of the economy, and inflation is more protracted, but also in terms of interest rate movements."

(Naomi Rovnick)

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EARLIER ON LIVE MARKETS:

TENTATIVE OPTIMISTS MULL BEST OUTCOME AFTER TRUMP TARIFFS CLICK HERE

TARIFF RISKS, IS PHARMA OUT OF THE WOODS? CLICK HERE

DEFENSIVE BUYING LIMITS THE DAMAGE CLICK HERE

EUROPE BEFORE THE BELL: HEAVY SELLOFF COMING CLICK HERE

SEEMS INVESTORS REALLY DON'T LIKE TARIFFS CLICK HERE