U.S. President Donald Trump’s decision to jack up tariffs on goods from China fueled market bets Friday that the Federal Reserve will cut interest rates later this year, with one Fed policymaker suggesting he could be receptive if economic data deteriorates.

Since January, the Fed has signaled it expects to leave rates unchanged while it takes stock of competing economic crosswinds, including lower-than-ideal inflation and faster-than-expected GDP and jobs growth.

In contrast Trump and other top administration officials have repeatedly urged the Fed to cut interest rates to boost economic growth, which is expected to slow this quarter from a 3.2 percent annual pace last quarter as the stimulative effect of last year’s tax cuts fade.

But asked Friday if the new U.S. tariffs could lead to a rate cut, Atlanta Fed President Raphael Bostic did not rule it out.

“Depending on the severity of the response, it could,” Bostic told reporters. “It really depends. It depends on what businesses decide to do and then it depends on how long the tariffs are in place.”

Fed projections published in March suggest most policymakers expect rates to be on hold through the end of the year. Fed Chairman Jerome Powell earlier this month predicted that recent low inflation readings were driven by transitory factors, and reiterated his view that there is no pressing need now to either raise or lower rates.

Inflation readings published Friday suggested price pressures remain muted.

But with the newly imposed tariffs, traders of short-term interest-rate futures are back to betting the Fed will cut interest rates by a quarter of a percentage point by December to counter a slowdown.

The Fed currently targets short-term rates in a range of 2.25 percent to 2.5 percent, which by its estimate is neither stimulating nor braking growth.

Importers are expected to pass on higher duties to consumers, leading to steeper prices on a range of goods within a few months time. Normally a rise in prices would reduce the chances of a Fed rate cut, but in this case a rate increase could become more likely.

Analysts say price increases from tariffs are likely to be transitory, and the Fed will likely ignore them.

Bart Hobijn, an Arizona State University economics professor, recently co-authored a study with San Francisco Fed researchers that estimated “sizable” but one-time inflationary effects from higher tariffs.

(SD-Agencies)