"If you have a situation where tariffs have a significant enough knock-on effect and real growth is impacted in a sustainable way, it's a prescription for them to [follow a] shallower path for the funds rate," said Jacob Oubina, senior U.S. economist at RBC Capital Markets.
As things stand now, the Fed has indicated it plans to hike its benchmark funds rate twice more this year, with the market pricing in moves in September and December. In addition, officials have indicated that three more hikes could be on tap in 2019.
"If the U.S. dollar is going to keep going up, I think the Fed will have to stop raising rates," said Jim Paulsen, chief investment strategist at the Leuthold Group. "I also wonder if we're getting close to two things that might force Trump's hand a bit to water this down. One is the midterms are coming up and [the trade war is] going to become a bigger and bigger issue for Trump, even from his own party.
"And if the economy starts to slow down, particularly the housing data, and that broadens out, I think that will bring a lot of pressure to bear on this trade war strategy," he added.
"The tariff situation is nothing that's sustainable, it's not something that's long lasting," said Peter Boockvar, chief investment officer at Bleakley Advisory Group. "I don't think the Fed is going to respond to tariffs that may not last."
Reference: CNBC
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