US economic outlook and Fed interest rate cut rest on Donald Trump’s meeting with Xi Jinping, analysts say
- The two world leaders are set to meet at the G20 summit next week in Osaka, Japan next week to discuss the ongoing US-China trade war
- US Federal Reserve opted to hold interest rates this month, but if the US levies tariffs on US$300 billion of Chinese imports, they could be forced to react
The outcome of next week’s meeting between Chinese President Xi Jinping and American counterpart Donald Trump at the G20 summit in Japan will play a major determining factor in the outlook for the economy in the United States and the prospects that the US Federal Reserve will cut interest rates in the next three to six months, analysts said.
While the meeting is not expected to deliver a trade deal, Trump and Xi may break the current stalemate by agreeing to a tariff ceasefire as they did at their last meeting in Argentina in December, while also rebuilding a negotiation framework to continue the trade talks, the analysts said.
“We think the timing and magnitude of any policy easing is uncertain and somewhat dependent on US-China trade relations. If [aggressive] US trade rhetoric or actions were to heat up, we could see the Fed ease policy as early as this summer,” said Andrew Wilson, CEO for Europe, the Middle East and Africa and global head of fixed income at Goldman Sachs Asset Management.
“However, if trade tensions were to cool down, we think the Fed would await data clarity and lower rates from autumn onwards.”
In May, the Trump administration accused China of reneging on provisions of a tentative trade deal, with the US wasting no time in doubling tariffs on US$200 billion of Chinese imports and threatening to levy tariffs on a further US$300 billion of goods, including consumer electronic products including smartphones, that have so far avoided sanctions.