The Federal Reserve is due to announce another rate hike this Wednesday and won't take any notice of the spat between the U.S. and its Western allies over trade tariffs, an economist told CNBC Monday.
Market players are monitoring the rhetoric surrounding trade between the U.S. and the other six world-leading economies after divergences at the Group of Seven (G-7) summit over the weekend.
U.S. President Donald Trump revoked his support for a joint statement after the meeting, following comments from Canadian Prime Minister Justin Trudeau. The latter said though he did not want to "punish American workers", he would be pressing ahead with retaliatory tariffs against the U.S.
As a result, President Trump called Trudeau "dishonest and weak" and warned the other G-7 leaders that retaliation against his tariffs on steel and aluminum imports, first announced in March, would be a mistake.
However, the trade tensions are likely to be ignored by the Fed given the positive economic data in the U.S., according to Jim O'Sullivan, chief U.S. economist at High Frequency Economics, who told CNBC that the Fed meeting "will almost certainly result in another rate hike, along with the message that continued tightening is likely."
Speaking to CNBC's Squawk Box Europe, O'Sullivan said that the G-7 leaders "are playing with fire here in terms of all the protectionist talk. The hope is, in the end, that a serious trade war is averted, not to say that there won't be tariffs on a small amount of goods compared to the overall size of the economy."