Fed Raises Alarm but is Anyone Listening?

Indices

• Dow 41,249, +931 or +2.31%.
• Nasdaq 17,928, -48or -0.27%.
• S&P 5,659, -27 or -0.47%.
• MSCI EAFE 2530.21, -6.16 or -0.24%.
• USD10Y4.375%, +5.3bp or +1.23%.
• WTI Crude $61.39/bbl, +$3.10 or+5.32%.

Fed Raises Alarm but is Anyone Listening?

The Fed met last week and as expected did not change their posture as it regards interest rates. However, in a unanimous statement they cited that uncertainty around the economic outlook “has increased further,” and added that “the risks of higher unemployment and higher inflation have risen.”

Any evidence regarding increased inflation risks may begin to show themselves in the April CPI and PPI reports due this week. However, since shipping from China takes about 35 days to reach west coast ports, any real inflationary pressures due to the tariffs will probably not show themselves until we receive the May data.

Tariff News

Over the weekend the administration announced a framework for a trade deal with the U.K., the U.S.’ ninth largest trading partner. Today, they announced that tariffs between the U.S. and China had been slashed temporarily to 30% for Chinese goods and 10% for U.S. goods. Markets have rallied strongly on the news. It is important to note that while these levels are a significant reduction from the original 125% levy on Chinese goods, this still represents a 30% price increase on Chinese goods vs what they cost prior to the administration’s “Liberation Day.”