Flickering flames on global markets have caused nasty new tariffs bustled the economies of India, Switzerland. Protecting developing countries from looming pharmaceutical duties of over 250% could make a world of difference for these countries. This does not come as good news to Big Pharma. As central banks like the European Central Bank (ECB) and the Bank of England (BoE) navigate these challenges, they find themselves walking a tightrope amid fluctuating economic conditions.
Relatedly, the Federal Reserve (Fed) is facing unprecedented intense criticism at the moment. It needs to do that while under pressure to decrease interest rates, especially with today’s high inflation numbers. Making matters worse is this double-whammy national crisis, which has thrown a bomb into an already fraught economic picture. The Fed’s upcoming decisions are of incalculable importance. Since then, demand for U.S. bonds has cooled, a trend that could have long-term fiscal consequences.
On the margins, recent action has resulted in keeping a lid on yields on U.S. bonds. This stability exists despite the pressure on the Fed to enact rate cuts, indicating a cautious approach from investors wary of rapid changes in policy. The $2 trillion Treasury Inflation-Protected Securities (TIPS) market is complicating this equation further. If confidence in U.S. inflation measures were to begin eroding, the damage could be severe.
The recent imposition of tariffs on India and Switzerland brings even more uncertainty to the economic outlook. Today both countries face large import tariffs. Such a change would likely rattle our most valued trade relationships while undermining the U.S. domestic industry that they support. Big Pharma is right to be concerned by this change in trade policy. Both sets of tariffs on pharmaceuticals would represent a severe multiplying effect on their cost of doing business.
Central banks, including the ECB and BoE, are under extreme duress. As their economies experience rapid fluctuations in growth and inflationary pressures, their monetary policies will be crucial in re-establishing their overall economic stability. The ECB’s tricky balancing act is to keep the economy growing, while keeping inflation from exceeding their target. Just like the Fed, the BoE faces similar internal challenges as it programs to a world changing before its eyes.