Nordea: The US interest rate cuts are now over

Banking group According to Nordea’s economists, the market has been taken over by the president Donald Trump’s met the beginning of the second presidential term, as a rule, very calmly.

“Even optimistically”, Nordea’s chief economist Wind Birch states.

“The background is the idea that Trump’s most radical ideas about fierce trade barriers or high tariffs would not come true.”

Nordic economists Juho Kostiainen reminds that even if Trump imposes ten percent tariffs on all European export products, the strengthening of the dollar against the euro that has already taken place has kept European export products more competitive by the same amount. The strengthening of the dollar has already almost compensated for the damage to the EU caused by the tariffs.

According to Kostiainen’s assessment, Trump can indeed use the threat of tariffs as a means of blackmail, with the help of which the EU countries would be forced to increase, for example, defense purchases from the United States.

In Kostiainen’s opinion, the biggest disadvantage of Trump’s tariff threats may be that, with various counter-tariffs becoming more common, World Trade freezes as general uncertainty grows.

“It slows down investments.”

Koivu and Kostiainen told the media about their views in a video conference on Tuesday.

Birch tree according to the US market has reacted to Trump’s second term with a rise in interest rates in addition to the rise in the currency.

Possible mass deportations of illegal immigrants from the United States could reduce labor availability. Customs, on the other hand, increase the prices of export products.

According to Koivu, both of these can contribute to an uncontrollable inflationary cycle in the United States.

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“However, the risks are increasing with Trump. You never know when you wake up in the morning what’s going to come out of there.”

However, according to Nordea’s assessment, the fact that Trump is not interfering with the independence of the US Central Bank (Fed) will reduce inflationary pressure. At the same time, increasing energy production in the United States has been given a special status in economic policy, and economic growth is wanted to be taken care of.

“However, the risks are increasing with Trump. You never know when you wake up in the morning what’s coming from there,” Koivu said.

Nordea in its interest rate forecast published on Tuesday, changed its view on the Fed’s interest rate decisions this year.

“We are no longer waiting for interest rate drops. Inflation figures have been creeping up, and they are still above the central bank’s target level.”

As for the European Central Bank, Nordea predicts three reductions in the key interest rate by 0.25 percentage points, so that the interest rates would end up around two percent.

United States has been Finland’s largest exporting country in 2022 and 2023, both in goods and services.

Even without the top billions from cruise ship exports, it is about 10 percent of exports, Kostiainen stated.

Finland exports to the United States a lot of oil products, medicines and engineering equipment.

According to Kostiainen, Finnish exports to the United States have seen trend-like growth in recent years.

“A good economic bet has increased exports to the United States, while the European economy has coughed. Investments have dragged.”

Also On Tuesday, Danske Bank assessed the effects of Trump’s inauguration day on the market.

Danske Bankin senior analyst Antti Iivonen according to the morning newspaper, the market’s eyes are on the tariffs, which Trump did not implement immediately.

“Trump emphasized in his speech that tariffs are not only a bargaining chip, but also a key source of income for the US federal government in the future.”

According to Iivonen, there is indeed a need for additional income, because in addition to tariffs, the Republicans’ key economic policy themes of the year include tax policy reform, where the price tag of just the extensions of the income tax cuts set by Trump in his first term would be more than 300 billion dollars a year from 2028 onwards.

Iivonen according to the assessment, tying the tariff increases as part of the financing solution for the expensive tax reform might explain why the increases were not seen at this stage.

“In recent weeks, news sources have hinted at disagreements within the Republicans over the size of both the customs and tax reforms, and thus their negotiations could take several more months.”

According to Iivonen’s assessment, the importance of forced returns to the labor supply would also be quite limited.

Danes The Bank predicts that the Fed will keep interest rates unchanged at its meeting next week.

Unlike Nordea, Danske Bank predicts that the Fed will continue to cut interest rates at the next meeting in March.