According to BlockBeats, a research report by China International Capital Corporation (CICC) outlines two potential scenarios regarding U.S. trade negotiations and their impact on interest rates. In the first scenario, if negotiations with trade partners show little progress and high effective tariff rates persist after 90 days, the income effect could dominate, leading to weakened economic demand. This situation might prompt the Federal Reserve to begin cutting interest rates from July, with a total reduction of up to 100 basis points over the year.
In the second scenario, successful negotiations could lead to reduced tariffs, with the substitution effect resulting in a milder demand shock. However, inflationary pressures might become more persistent, potentially causing the Federal Reserve to delay easing measures, with only a minor rate cut expected in December. For the market, although monetary easing would occur earlier in the first scenario, such "recessionary" rate cuts would reflect a deterioration in economic fundamentals, potentially suppressing risk assets.
