Archive

HEW: Yikes, At Tonto Tariff Hikes

• Surprisingly severe global tariff hikes smashed market sentiment, dovishly depressing equity prices and rate expectations. Lower EA inflation also leans toward looser policy. Market eagerness to discount ongoing US labour market resilience seems excessive.
• Those new tariff rates are scheduled to take effect over the week ahead, with any more trading of blows potentially the main macro news. US inflation, UK GDP and the RBNZ are the more conventional highlights, but the data may be discounted as old news.

By Philip Rush

ECB Meeting Accounts - March 2025

• In the accounts for its March meeting, the ECB cited a broadly intact disinflation path and moderating wage pressures, but emphasised that rising trade and fiscal uncertainties diminish the reliability of the baseline outlook.
• While most inflation indicators point to a sustained return to target, sticky services inflation and tight labour markets present upside risks, necessitating a cautious approach to future rate cuts.
• With credit conditions easing and policy rates approaching estimated neutral levels, the ECB acknowledged that monetary policy is becoming less restrictive and refrained from signalling further easing.

US Tariff Impact Estimates

• New US tariffs ignored any notion of reciprocity, reaching shockingly substantial sizes. However, the UK was relatively fortunate in landing on the 10% minimum rate.
• Repeating 2024’s imports would raise $577bn in tariff revenue, which is worth ~3% of consumption. 70% pass-through to prices would add 2% to the level over 1-2 years.
• Negotiations need to conclude rapidly to avoid these front-loaded price rises. The EU’s likely retaliations would magnify its pain, but the US is the biggest stagflationary loser.

By Philip Rush

Tariff Transition Smoothing

• President Trump's tariffs embed structural cost pressures, compounding supply chain changes and creating a stagflationary shock central banks cannot offset.
• Potential retaliation risks raising inflation expectations, constraining the extent to which monetary policy can smooth transitional pains through temporary easing.
• We still believe any dovish policy imperative is likely to be short, shallow, and reversed, with central banks forced to remain flexible and focused on shorter horizons again.

By Philip Rush