| Interest Rate Market Snapshot | ||||||
| Federal Funds | SOFR | 2Y Treasury | 5Y Treasury | 7Y Treasury | 10Y Treasury | |
| 4.33% | 4.42% | 3.84% | 4.03% | 4.21% | 4.40% | |
Trade war canceled? Not so fast
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What a roller coaster markets have been on since Liberation Day and Trump’s “MY POLICIES WILL NEVER CHANGE” post last week
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Until the next Truth Social post comes out, here is the latest:
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The White House announced a 90-day pause for most trade partners and hiked the tariff on Chinese imports to 125% yesterday. Markets rejoiced, and the relief rally took off in a major way
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A follow-up clarification revealed that U.S. Customs and Border Protection is applying the pause to every country except China—so Canada and Mexico are safe (for now)
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But if you look closer, this big announcement didn’t really shift the overall picture. Yes, there’s some reallocation between countries, but the average U.S. tariff rate barely budged—from 26.85% before the announcement to 26.25% after
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In short, the announcement helped calm market nerves but didn’t do much to brighten the economic outlook. The threat of higher inflation and slower growth remains unchanged, and the start/stop nature of tariff policy keeps volatility on a knife’s edge.
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It might have actually been the bond market that saved the day. Trump noted afterward:
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“The bond market is very tricky. The bond market right now is beautiful. But yeah, I saw last night where people were getting a little queasy”
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sourcE: bloomberg
source: bloomberg
If it weren’t for tariffs hanging over the market, the inflation story would be looking a whole lot better this morning
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While backward-looking, the March inflation data made major strides in the right direction:
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Headline CPI: -0.1% last month—the largest negative print since 2020. That helped bring the annual inflation rate down from 2.8% to 2.4%
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Core CPI: +0.1% last month—the smallest monthly increase since January 2021, lowering the annual core rate from 3.1% to 2.8%
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This is welcome news and gives the Fed some cover to cut when the time is right—but that time won’t come until the impact of tariffs shows up in the data
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For now, the Fed remains on hold until all this uncertainty clears
source: bloomberg
Behind the numbers:
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Food: Four of the six major grocery store categories rose last month, led by eggs (+5.9%) and beef (+1.2%). Food-at-home prices have been steadily climbing and are now back up to a 3.0% annual rate—up from 2.1% last summer
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Energy: This was the game changer. A 6.3% drop in gasoline prices more than offset rising electricity and natural gas costs
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Goods: Big declines in prescription drug prices and used cars/trucks helped pull the overall goods category lower for the month
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Services: Shelter costs were a mixed bag. Owners’ equivalent rent came in hotter than expected, but a 3.5% drop in Lodging Away from Home and a 0.3% decline in Home Insurance helped temper the overall increase. The annual shelter inflation rate fell to 4.0%—the lowest since 2021. If it weren’t for tariffs, this report would be screaming inflation normalization toward the Fed’s 2% target
Maybe this is just the calm before the storm—or maybe we’re still in the early innings of this tariff inflation ballgame with plenty left to sort through
In this noisy market, the Fed and the market could not be further apart on the possibility of rate cuts:
The Fed:
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Logan - “For now, I believe the stance of monetary policy is well positioned”
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Kashkari – “Given the paramount importance of keeping long-run inflation expectations anchored and the likely boost to near-term inflation from tariffs, the bar for cutting rates even in the face of a weakening economy and potentially increase unemployment is higher”…“The hurdle to change the federal funds rate one way or the other has increased due to tariffs”
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Hammack – “I would much rather wait and move in the right direction than move quickly in the wrong direction”
The market:
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Just the opposite, pricing in 100 bps of cuts over the next year with the first one coming by June…just 10 weeks away
source: bloomberg
sourcE: bloomberg
By the way - yesterday’s relief rally was one for the history books..
sourcE: bloomberg
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