A Pragmatic Turn in the White House: The Negative Consequences of Tariff and Inflation Policy

In recent days, it has become increasingly clear that the American administration is beginning to notice the negative effects of its own tariff and inflation policies.On Thursday, the market widely discussed inflation expectations in the US, which indicate that price growth could slow significantly next year. A day later, the White House announced another initiative aimed at easing the impact of tariffs on the economy by expanding the list of agricultural products exempt from mutual tariffs. The list included mainly basic food products.

According to the administration, this decision is due to the fact that the products in question are not produced in sufficient quantities in the United States to meet domestic demand, and the goal is to reduce price pressure on consumers.

Additionally, many food-exporting countries – including Brazil, one of the world’s largest agricultural producers – are still subject to high tariffs of around 40%, meaning tariff relief remains limited. Moreover, administration representatives have been claiming for months that tariffs do not affect price levels, while current decisions clearly assume that their reduction will lead to a drop in food prices.This is a clear shift in narrative and an implicit admission that protectionist policies have contributed to the rising cost of living.

The political dimension of change

In reality, this change is purely political—intended to protect consumers from the consequences of previous tariff decisions. The issue of food availability and affordability was a key issue in recent local elections, so the administration is now trying to respond in a way that could ease public pressure and improve political ratings.

If the tariff cuts actually translate into a slowdown in inflation, it could pave the way for further interest rate cuts by the Federal Reserve.In recent weeks, the market has begun to lean towards a no-rate cut scenario in December, but a shift in inflation expectations may again increase the likelihood of monetary policy easing.

This correction in interest rate expectations could be a key factor in the continued strength of the US dollar. Market participants remain cautious, but the dollar remains stable, even as bond yields and inflationary pressures begin to normalize. A key test for the dollar will be upcoming macroeconomic data from the US. If they confirm a decline in price dynamics and moderate economic growth, the market could once again begin pricing in a higher probability of rate cuts as early as the first half of 2026.

Source: OANDA TMS Brokers