Fed will ignore G-7 trade spat and announce new rate hikes, economist says

Earlier this month, data showed that the U.S. economy added 223,000 jobs in May. Economists had estimated 188,000. Last week, initial claims for state unemployment benefits also decreased 1,000 to a seasonally adjusted 222,000 — economists had estimated an increase. The positive data has confirmed expectations that the Fed is on track to deliver another rate hike this Wednesday.

“The Fed is expected to raise policy rates by 25 basis points. That’s largely priced in,” Tai Hui, chief market strategist at J.P. Morgan Asset Management told CNBC via email Monday. “More importantly, its updated projections on growth, inflation, jobless rate and policy rate will be closely scrutinized,” he said.

However, experts warn a potential trade war carries risks for global growth and markets.

“The biggest source of downside risk here … is a trade war mongering… It is disturbing the way this is developing,” O’Sullivan told CNBC.

“Without all this trade mongering, the U.S. equity market would be higher than what it is today, and maybe the economic numbers would be even stronger than what they are, but the net result is, the U.S. economic data continue to be strong, more than strong enough to keep the employment rate coming down,” O’Sullivan said.

Commenting on the G-7 meeting, Hui said “business confidence and, subsequently, capital spending is at risk if this (trade) tension continues through the summer. This could cast a long shadow over global growth, which has rebounded in recent weeks after a soft start to the year.”

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