Trump, Powell And Rates: The Post-Liberation Day Edition

2025-04-08 05:30:00 ET

Summary

• The unexpectedly steep tariffs announced on April 2 have injected fresh uncertainty into markets, but with implementation delayed until April 9, investors have a narrow window to reposition around ongoing trade negotiations.
• Despite rising risks to growth posed by tariffs, the Federal Reserve is maintaining flexibility, with Chair Powell signaling potential rate cuts while emphasizing the economy’s underlying strength as a buffer.
• Treasury yields have dropped sharply amid a flight to safety, yet markets have not priced in a full-blown economic downturn - creating both risk and opportunity depending on how trade and fiscal headlines evolve.

By Kevin Flanagan & Samuel Rines

With the financial markets still wrestling with the tariff announcements from last week, one thing is still certain: uncertainty remains an integral part of the investment landscape. While we now know the actual tariff announcements, we don’t know what the final results will ultimately look like in the weeks and months ahead, and more importantly, their potential impacts on the economy and inflation, not to mention Federal Reserve policy decisions. Against this backdrop, there’s been a debate about whether recently released data, such as the March jobs report, represents stale, i.e., pre-tariffs, news. Yes, one can certainly make that case, but we would argue that how the economy/labor markets looked prior to Liberation Day is also important to see if things were sound enough to be able to absorb the potential negative effects that could be coming. One silver lining is that the March employment data revealed the labor market was still in relatively solid condition pre-tariffs....

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