At the balance and at first glance, the latest developments should see a greater reduction in the overall average tariffs rate in the US. If so, that should eventually have a negative impact on price pressures and helps with the narrative of softening inflation and more Fed rate cuts. But again, it’s a lot to take in as the news hit on Friday and with there still being a lot of uncertainty up in the air.
Trump’s reciprocal tariffs under the IEEPA is now deemed illegal. And the US customs will stop collecting said levies starting after midnight later today. The US president has already proceeded with his next step in invoking Section 122 of the Trade Act of 1974. And at the end of it all, this seems like a tactic to stall for time as Trump pursues trade investigations under Section 301 next. S&P 500 futures may be off earlier lows but are still down 0.2% currently. Tech shares are lagging with Nasdaq futures down 0.3% while Dow futures are also down 0.2% for now.
It’s still early in the day and market players have a lot to digest in making sense of the latest tariffs shift above.
And it’s not just that mostly. The immediate response by Trump also signals that he is not going to easily let this go to pass. Taking that into consideration, it could mean more erratic and uncertain policy maneuvers that even we might not be able to think of at this time.
The logical path seems to be the one laid out above as mentioned. But if we all know Trump and we definitely do by now, it is that sometimes the logical path is not always the preset course of action. So, there might still be some curveballs yet to deal with and that is keeping markets on edge in trying to make sense of the situation.
The easy take is that this will all still culminate in a more bearish outlook for the dollar, one way or another. Poor policy management and erratic trade policy setting. That’s never a good thing. And if not, lower tariffs means less threat to the inflation outlook. So, that helps with a envisaging lower price pressures in the US to allow for more rate cuts. Either way, a dollar negative.
And if the consensus leans towards a stronger likelihood of the Fed cutting rates, that should be a risk positive at the end of it all. But right now, we’re still in the eye of the storm. So, it is understandable for the market reaction to be one that leans more cautiously
