The potential for a spike in inflation in the United States has changed the inclination of Federal Reserve (Fed) officials to keep interest rates at current levels at the Federal Open Market Committee (FOMC) meeting scheduled for this week.
Concerns about an economic slowdown and pressure from President Donald Trump to cut interest rates have also put the Fed in a challenging position.
Meanwhile, Fed Chairman Jerome Powell was somewhat relieved when labor market data last Friday showed an increase of 177,000 jobs for April. If the NFP data remains strong, the Fed still has room to consider cutting interest rates.
The Fed's favorite inflation gauge also shows slowing price pressures. Although this is seen as a positive sign, the implementation of new tariffs by the United States has the potential to increase import costs and rekindle inflationary pressures.
The uncertainty surrounding the market at the moment also makes it difficult for global central banks to act, especially when the White House's tariff policy has become a 'nightmare' for future economic forecasters.
However, Fed officials had stated their stance earlier in the year that they were in no rush to ease monetary policy, given the risk of tariffs causing a resurgence in inflation.
In other news, news of the possible firing of Jerome Powell by Donald Trump raised concerns about the independence of the monetary policy body. However, Trump retracted the statement a few days after it was published.
