Macro Observations

The whipsaws in but the market have been unrelenting for two solid weeks and the scariest part might be that we have no idea when it really might end. The Trump tariffs are responsible for a big part of it, but you can’t tell the story of the financial markets right now without a discussion of Treasuries, foreign governments, potential manipulation and, of course, Japan.

The Trump tariffs ended up being much more aggressive than expected and, although some key products, such as semiconductors and lumber, were exempt from certain tariffs, this marked a big escalation in the trade war that I’m not sure can be so easily walked back. I don’t want to put too much weight into one day’s trading activity, but I think this day in particular might provide some good insight into what the market was thinking & doing.

The “hold rates and add liquidity” approach could effectively give Powell justification that he’s tackling inflation and growth at the same time. But if the Fed is going to target slowing growth by reducing QT (and maybe even eventually flipping to QE), while using rates to target inflation, is it reasonable to think that we may get no action at all on rates?