Tariffs raise recession risk, Fed’s ability to lower rates in US: Fitch

NEW DELHI: Reciprocal tariffs imposed by the US significantly raise risks for a recession in the US and constrain the US Federal Reserve’s ability to lower interest rates further, Fitch Ratings said in a note.

Post the higher-than-anticipated tariffs imposed the US administration, the rating agency projected that US growth in 2025 is likely to be slower than the 1.7 per cent that it had projected in March.

According to Fitch Ratings, tariff hikes will result in higher consumer prices and lower corporate profits in the US.

“Higher prices will squeeze real wages, weighing on consumer spending, while lower profits and policy uncertainty will act as a drag on business investment,” Fitch said.

“Upward pressure on goods prices from tariffs – in the context of a recent large jump in US households’ medium-term inflation expectations – means the Fed is likely to become more cautious about further rate cuts in the near term.”

Fitch expects these effects will likely outweigh the benefits US companies might gain from increased protection against foreign competition.

It further added that the broad-based nature of the tariff hikes constrains the scope for trade diversion, underlining the likelihood that the trade war will have adverse effects all round.

Since assuming office for his second term, President Trump has reiterated his stance on tariff reciprocity, emphasising that the United States will match tariffs imposed by other countries, including India, to ensure fair trade.

On April 2, the US President issued an executive order on reciprocal tariffs, imposing additional ad valorem duties ranging from 10 per cent to 50 per cent on imports from all trading partners. The baseline duty of 10 per cent will be effective from April 05, 2025, and the remaining country-specific additional ad valorem duty will be effective from April 09, 2025.

The additional duty on India is 26 per cent. (ANI)