Deka Chief Economist Ulrich Kater: What the US Federal Reserve will do on Wednesday

Since Iran is not only a major oil-producing country but also controls important transport routes, there is concern in the capital markets that a further escalation would also have negative consequences for the global economy. Accordingly, not only oil prices but also global risk markets are reacting sensitively to the situation.

In addition to these geopolitical uncertainties, markets continue to assess the impact of global tariffs and trade restrictions. So far, the global economy has been able to cope with these burdens much better than feared. And the outlook also generally points to de-escalation.

However, the outcome of the trade talks between the US and China, which took place in London last week, suggests that both sides have effective means of pressure and that rapprochement will take time.

Markets must therefore accommodate a permanently increased tariff base and adapt to a constant restructuring of the global economy. Additional geopolitical disruptions are particularly inconvenient during this phase.

These issues also pose a challenge for the US Federal Reserve, which will meet next Wednesday to decide on interest rates. The starting point is complex, as the tariffs and threats of tariffs have had a negative impact on business and consumer sentiment, but are still barely visible in the economic data.

The US economy continues to grow steadily, and tariff effects are hard to come by in the inflation figures. Therefore, there is no reason for interest rate cuts anytime soon, but there is the prospect of moderate reductions later in the year.