Central Banks Are Treading Carefully

2025-05-13 04:00:00 ET

Summary

• Markets are taking a significant de-escalation of US-China tariffs — down to 30% from 145% for 90 days — positively.
• The Fed remains in wait-and-see mode as tariff uncertainty has resulted in upside price risks and downside employment risks.
• The BOE cut interest rates but also struck a hawkish tone because the vote to cut was closer than anticipated.

The 2018 trade conflict between the US and China has felt like an apt analogy to the current environment. By late 2018, business sentiment deteriorated, ¹ recession concerns rose, and the S&P 500 Index sold off by nearly 20% in a short period. ² By the time investors had become increasingly bearish, ³ the policy mix was changing. The Trump administration announced a 90-day tariff pause with China, and the US Federal Reserve became increasingly more dovish. The following year was strong for risk assets. ⁴ ...

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