Trade war could force Fed to raise rates, hurting crypto

Komal Sri-Kumar, president of Sri-Kumar Global Strategies, warned that the ongoing U.S.-China trade tensions could push the Federal Reserve towards hiking interest rates, a move that is generally seen as a headwind for cryptocurrency and other risk assets.

Speaking on CNBC’s “Power Lunch” segment Wednesday afternoon, Sri-Kumar said he believes an interest rate hike is necessary as inflation risks mount. Notably, he expressed skepticism over the narrative that the trade war is nearing resolution which means the “Fed has to be vigilant”.

This view contradicts the growing market expectation of rate cuts as the Fed attempts to support economic growth. Crypto.news analyst Crispus Nyaga commented in an April 4 article that interest rate cuts is historically bullish for Bitcoin (BTC) and other asset classes.

He added that any move to raise rates could provoke further friction with the White House, which may pressure Fed Chair Jerome Powell despite his independence.

Powell, who has one year left in his term, has been at the center of this tension, with previous reports indicating the president had considered firing him, a threat that has since been walked back.

Sri-Kumar’s message was clear: expect more volatility ahead, both from unpredictable geopolitical shifts and a central bank navigating a treacherous inflationary landscape.

No concessions, no clarity

According to Sri-Kumar, the recent interactions between the U.S. and China demonstrate a lopsided dynamic. While the U.S. administration has toned down its tariff threats, China has not made significant concessions in return.

“Trump, after a big talk about 145% tariffs, is now willing to come down without any concession on the Chinese part,” Sri-Kumar noted.

As such, the president weakened the U.S.’s negotiating stance. He criticized what he perceives as an inconsistent strategy from the administration, pointing out that markets and foreign leaders now anticipate that tough talk from Washington will eventually soften if markets begin to falter.

“That is a very bad negotiating strategy,” he said.

He further noted that the trade war has perpetuated uncertainty for U.S. manufacturers, who remain wary of new or returning tariffs if negotiations sour. While markets are rallying on encouraging comments from the White House, the uncertainty companies faced just days ago “has not gone away.”