The ongoing trade tensions under President Trump's administration have taken center stage once more, as he prepares to engage in critical discussions with both Canadian Prime Minister Justin Trudeau and Mexico City Mayor Claudia Sheinbaum. This dialogue comes amidst heightened concerns about the U.S. Federal Reserve's potential response to these escalating economic pressures. The Wall Street Journal has raised the question of whether the Fed will cut rates, a topic that has sparked widespread commentary and speculation. Meanwhile, the consumer awareness of inflationary risks has grown, influencing economic expectations across the board.
The Briefing, a publication renowned for its experienced analysis and insight, has been a daily source of information for over 25 years, providing readers with context and understanding in these turbulent times. The publication highlights that while President Trump's tariff announcements have dominated the headlines, overshadowing other key economic data, the Federal Reserve is acutely aware of the public's heightened sensitivity to the inflationary potential of tariffs. This awareness is likely to influence their response significantly differently compared to the actions taken in 2018.
The Atlanta Federal Reserve's initial estimate projects a 2.9% GDP growth for the first quarter, presenting a solid economic outlook despite the challenges posed by ongoing trade disputes. However, economic surveys indicate that consumers remain vigilant about potential inflationary impacts, which could compel the Fed to act if an economic collapse seems imminent.
"Stephen Jen at Eurizon SLJ Capital said foreigners own $25 trillion more in American assets than Americans have in overseas holdings. That’s about 85% of US GDP, up sharply from 20% in 2012." – Stephen Jen
This significant foreign investment in U.S. assets underscores the global stakes involved in America's economic policies. The U.S. dollar has experienced fluctuations amidst these tensions, initially rallying and then retreating as the market digests upcoming PMI data. Similarly, currency pairs such as GBP/USD have shown volatility, with the pair rising toward 1.2400 after previously dipping to a two-week low of 1.2250.
Gold, often seen as a safe-haven asset, has regained traction, moving closer to its record-high above $2,810 set last Friday. These movements reflect broader market sentiments and investor anxieties surrounding the ongoing trade tensions and their potential ramifications.
"The main thing is the corruption of the US state by a president and his cronies. The tariffs are hugely illogical and massively destructive. But even if they were postponed — keep an eye on the Federal Register today to confirm they’re coming in tomorrow — this is still an administration prepared to trash norms of democracy and law to use the US’s economic might to pursue vengeful campaigns against enemies real and imagined, foreign and domestic. There are many worse things than tariffs, and I fear we’re seeing them." – Beattie (FT columnist)
Beattie's commentary highlights concerns not only about the economic impact of tariffs but also about broader implications for democratic norms and governance under President Trump's administration. These issues add layers of complexity to the already intricate dynamics between economic policy and political strategy.
Furthermore, the U.S.'s considerable leverage over Canada and Mexico stems from their dependency on American markets for exports. This leverage may play a crucial role in any negotiations or resolutions emerging from Trump's discussions with Trudeau and Sheinbaum.
"over three-quarters of their exports destined for the United States, so they are highly dependent on the U.S. market. This dependence provides the United States considerable leverage, and may give Mr. Trump his quick tariff win." – Cutler (Asia Society Policy Institute)
The calendar for economic data includes notable releases such as the ISM manufacturing survey, December construction spending figures, and auto sales data. However, these important indicators have been overshadowed by tariff-related developments and market reactions.