Komal Sri-Kumar, Sri-Kumar Global Strategies president, joins 'Power Lunch' to discuss Trump's trade war impact on the Fed, markets and economy.

Washington

Komal Sri-Kumar, president of Sri-Kumar Global Strategies, recently appeared on the "Power Lunch" program to discuss the potential implications of President Trump's trade policies on the Federal Reserve's interest rate decisions, as well as on the broader markets and economy. Sri-Kumar highlighted concerns over the U.S. trade tensions with China, suggesting that the ongoing trade war could lead to an increase in interest rates due to anticipated inflation pressures.

Sri-Kumar noted that the Federal Reserve, led by Chairman Jerome Powell, may need to act vigilantly if trade disputes persist. The expectation is that continued trade tensions could drive up prices, which might prompt the Fed to raise interest rates—a strategy Sri-Kumar has been advocating. He underscored concerns that the Chinese have not conceded to recent demands, despite initial threats of high tariffs from the Trump administration.

On the geopolitical front, Sri-Kumar expressed concerns over the U.S.'s negotiating strategies. He pointed out the potential political ramifications of making bold threats without following through, stating that it reflects poorly on U.S. negotiation tactics and may encourage a softer approach to Chinese negotiations. The resulting uncertainty from this situation not only affects political dynamics but also impacts U.S. manufacturers, who continue to face ambiguity about future trade relations and tariff enactments.



Trade war will make Fed hike interest rates, says Sri-Kumar

But even with all the headlines around Doge and job cuts, the US debt and deficit level still going up. So what exactly is the outlook for markets and credit and bonds? And does the Federal Reserve really even matter that much right now? Shri Kumar is president of Shri Kumar. Global strategies, one of our favorite people streets. It's great to have you back on and I'm not taking anything away from the Federal Reserve and Jerome Powell. They run a balance sheet that's 150% larger than the tax flow of the United States of America. I would say that's fairly big. That said, is there anything they can do about a trade war? Are the Fed can? Yes, the Fed can do something about the trade war if the trade war continues and I don't think the trade war is over by any means. Brian, we can talk about it, but if the trade war continues, the Fed has to be vigilant and because of the expected increase in prices, the pickup in inflation rate, the trade war would make the Fed, if anything, hike interest rates, which is what I have been recommending for a while. In terms of the last two days development, see what has happened. The Chinese have made absolutely no concession in the last few days. Trump, on the other hand, after a big talk about 145% tariffs, is now willing to come down without any concession on the Chinese part. And the Chinese are watching and saying that after threatening Powell essentially to fire him, he says now that he has no interest in firing him. So in other words, the rest of the world gets the idea that the way to deal with this person is not to make any concession watch and when his market's greater, he will in turn soften his approach. And that is a very bad negotiating strategy. Sri, are you concerned about it in a geopolitical sense? Or do you think, you know, someone say, well, you know, from a market pragmatic outcome, which doesn't seem to really favor the reshaping of international trade and manufacturing and so forth, they don't care. They're fine with that outcome that we haven't lost anything. What have we lost? If that's the case, is it more of a political problem than maybe an economic one? On the US side, Kelly, what we have lost is to make big threats and not carry them out. That's one that we have lost. And so on a negotiating point of view, political point of view, it has been a loser because I think the concessions are going to come with the Chinese. And as they have responded essentially that they want to be treated with respect, that they haven't made any statement indicating that they are climbing down at all. So that's the one thing on the political side that you asked about, Kelly. Second, look at what happens to manufacturers and others here. The uncertainty that they face has not gone away. It is still there. The tariffs may again come back if the president decides that the Chinese have not been sufficiently good in dealing with him. And similarly, on the Powell side, the Federal Reserve, I don't think can easily cut interest rates. And if they are talking about hiking interest rates after inflation picks up, that is going to get the president very angry as well. So all of that is ahead. And keep in mind that the chairman has his job for one more year. So that's a long time to come. And we'll be only a few months before the midterm election.

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