For four consecutive months, economists have predicted that U.S. inflation would surge, largely due to President Trump's trade policies and the anticipated economic impact of his tariffs.
Inflation Data Defies Predictions
Tariffs Today: A Compendium
Tariffs have long been used globally to support local industries by incentivizing citizens to purchase domestically made products. At the turn of the 20th century, tariffs were the primary source of tax revenue for many nations. Today, funding comes from income, payroll and corporate taxes. In the U.S., tariffs accounted for approximately 90% of federal income until the Civil War. After World War II, tariffs fell out of favor in developed economies because they often led to reduced trade, higher prices and retaliation from abroad.
Return of the Vigilantes
This week, equity market volatility continued due to last week’s announcement of global tariffs. Investors, attempting to handicap the potential impacts on the U.S. economy and corporate profits, caused a bond market rally by selling risky assets (stocks) and buying safe assets (government bonds). However, something changed over the weekend. The 10-year U.S. Treasury yield started the week at 3.9% and, by Tuesday evening, had reached 4.5%.
Turning the Page
It’s been just over a month since the U.S. presidential election, and financial markets continue to be influenced by anticipation for the incoming administration in Washington D.C.
The Election and Interest Rates
In a typical week, a .25 point interest rate cut by the Federal Reserve would likely be the top economic story in the United States. This was not a typical week.
Trade Policy Tango
This weekend, many world leaders will travel to Buenos Aires, Argentina, for a meeting of the Group of Twenty, also known as, “G20.” Although the G20 does not have the power to enforce policies, the outcomes of G20 summits have been highly influential to global policy.