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SGH Macro Advisors produces concise, forward-looking proprietary reports on the major central banks and on key economic and policy developments that drive global bond, equity, and currency markets.
Founded in 2009, SGH has over the years built a reputation as a thought leader and source of well-informed, cutting-edge information, analysis, and insight on policy and financial markets. Its briefings and reports are highly valued by many of the world’s most well-known and influential hedge funds, money managers, and policymakers.
Highlights
SGH reports are highly valued for keeping clients and policymakers informed and well-ahead of market consensus.
March 6, 2025
SGH Insight
A cut at the European Central Bank’s next meeting in April to follow the 25bps cut in its benchmark deposit ratetoday to 2.5% is clearly a decision that is very much up in the air. But although today’s press conference from ECB President Christine Lagarde was, in being fully noncommittal on future moves, a bit more hawkish than we had expected, we still lean toward expecting two more 25bps rate cuts from the ECB in April and June, to take the deposit rate down to 2%.
Where we would adjust our previous assessment is that an April cut may no longer follow in response simply to data that affirms further confidence in hitting the ECB’s latest inflation forecast. Most notably, that would mean further affirmation of continued gradual disinflation in core and services, which we expect. Rather, the Governing Council may need just a bit more rattling on the trade front, or on signs of continued consumer retrenchment, to get consensus for two more back-to-back cuts. We do think that will be coming.
Market Validation
Where we would adjust our previous assessment is that an April cut may no longer follow in response simply to data that affirms further confidence in hitting the ECB’s latest inflation forecast. Most notably, that would mean further affirmation of continued gradual disinflation in core and services, which we expect. Rather, the Governing Council may need just a bit more rattling on the trade front, or on signs of continued consumer retrenchment, to get consensus for two more back-to-back cuts. We do think that will be coming.
AFP 4/17/25
The European Central Bank cut interest rates again Thursday amid fears that US President Donald Trump's stop-start tariff announcements could threaten growth across the eurozone.
ECB policymakers decided to lower the benchmark deposit rate by a quarter point for the sixth time in a row, leaving it at 2.25 percent.
The European Central Bank cut interest rates again Thursday amid fears that US President Donald Trump's stop-start tariff announcements could threaten growth across the eurozone.
ECB policymakers decided to lower the benchmark deposit rate by a quarter point for the sixth time in a row, leaving it at 2.25 percent.
March 21, 2025
SGH Insight
Despite all the uncertainty and the pullback in market pricing for cuts, we continue to lean toward another 25bps rate cut on April 17, from 2.5% to 2.25%, followed by a final cut to 2% on June 5.
If we were to have to choose between an April or June cut, we would lean to April as the cleaner and more logical choice, allowing the ECB to reassess at its next forecast round in June.
Market Validation
If we were to have to choose between an April or June cut, we would lean to April as the cleaner and more logical choice, allowing the ECB to reassess at its next forecast round in June.
Wall Street Journal 4/17/25
The European Central Bank cut interest rates to offset the economic blow of tariffs, drawing the attention of President Trump, who urged the Federal Reserve to follow suit.
The ECB on Thursday lowered its key interest rate to 2.25% from 2.5%, its seventh cut in eight meetings, taking borrowing costs to their lowest level since early 2023. U.S. tariffs are expected to erode already-weak economic growth in the bloc, where struggling auto, luxury goods and high-end food and beverage companies are reliant on exports to America.
The European Central Bank cut interest rates to offset the economic blow of tariffs, drawing the attention of President Trump, who urged the Federal Reserve to follow suit.
The ECB on Thursday lowered its key interest rate to 2.25% from 2.5%, its seventh cut in eight meetings, taking borrowing costs to their lowest level since early 2023. U.S. tariffs are expected to erode already-weak economic growth in the bloc, where struggling auto, luxury goods and high-end food and beverage companies are reliant on exports to America.
March 31, 2025
SGH Insight
The Reserve Bank of Australia (RBA) will hold off on a March rate cut but likely tilt guidance toward a May easing using language as it starts to rebalance the Bank’s inflation concern with downside growth risk.
As is the case for a number of central banks, inflation and growth risks are now pulling in different directions, posing the likelihood the RBA will need to shift more clearly to protecting downside growth risks over the next several months.
We see the Bank cutting 25 bps in May and August 12 to around 3.50%, with the risk of another move in the second half of the year (see SGH 12/2/25; “RBA: Hawkish Cut, Shallow Path”). While that may be sufficient to buffer economic growth, the Bank will become increasingly attuned to the risk of a softer second half of the year amid ongoing trade fallout.
Market Validation
As is the case for a number of central banks, inflation and growth risks are now pulling in different directions, posing the likelihood the RBA will need to shift more clearly to protecting downside growth risks over the next several months.
We see the Bank cutting 25 bps in May and August 12 to around 3.50%, with the risk of another move in the second half of the year (see SGH 12/2/25; “RBA: Hawkish Cut, Shallow Path”). While that may be sufficient to buffer economic growth, the Bank will become increasingly attuned to the risk of a softer second half of the year amid ongoing trade fallout.
Bloomberg 4/15/25
The RBA flagged that a move may come as soon as next month. By the May 19-20 meeting, the board will have
additional data on the labor market, inflation, household spending, a fresh set of staff forecasts as well as “further
information about the likely evolution of global trade policies,” the minutes showed. “Collectively, this information
would have a considerable bearing” on the decision, it said.
The RBA flagged that a move may come as soon as next month. By the May 19-20 meeting, the board will have
additional data on the labor market, inflation, household spending, a fresh set of staff forecasts as well as “further
information about the likely evolution of global trade policies,” the minutes showed. “Collectively, this information
would have a considerable bearing” on the decision, it said.
April 14, 2025
SGH Insight
China’s National Bureau of Statistics (NBS) will release Q1 2025 GDP data tonight US Eastern time, Tuesday morning local time with press conference to follow at 10:00 am. The release is expected by markets to register a solid 5.2% annualized growth rate, from 5.4% in Q4 2024 and 5.3% in Q1 2024.
As is customary, last Thursday, April 10, nine economic departments provided their own estimates for GDP to China’s State Council. These ranged from 5.0% to 5.4% and were clustered around 5.2% and 5.3%.
While these estimates are not typically perfect indicators for the actual data release, the NDRC, China’s economic planning agency, edged toward the higher side, at 5.3%, and we find it plausible that among other things the front loading of exports ahead of US tariffs may have helped boost the numbers to the higher side of the range.
Market Validation
As is customary, last Thursday, April 10, nine economic departments provided their own estimates for GDP to China’s State Council. These ranged from 5.0% to 5.4% and were clustered around 5.2% and 5.3%.
While these estimates are not typically perfect indicators for the actual data release, the NDRC, China’s economic planning agency, edged toward the higher side, at 5.3%, and we find it plausible that among other things the front loading of exports ahead of US tariffs may have helped boost the numbers to the higher side of the range.
Bloomberg 4/16/25
China’s economy showed surprising strength in early 2025 thanks to consumer subsidies and a rush of export shipments to beat tariffs, although an impasse with Donald Trump over the trade war is darkening its outlook and fueling calls for stimulus.
China’s gross domestic product grew 5.4% in the first quarter from a year ago, the government said Wednesday, more than a forecast of 5.2%. Both production and consumption indicated unexpected momentum in March, before massive US levies on Chinese goods kicked in this month.
China’s economy showed surprising strength in early 2025 thanks to consumer subsidies and a rush of export shipments to beat tariffs, although an impasse with Donald Trump over the trade war is darkening its outlook and fueling calls for stimulus.
China’s gross domestic product grew 5.4% in the first quarter from a year ago, the government said Wednesday, more than a forecast of 5.2%. Both production and consumption indicated unexpected momentum in March, before massive US levies on Chinese goods kicked in this month.
April 13, 2025
SGH Insight
The week begins with Federal Reserve Governor Chris Waller. Waller’s message of late has leaned dovish, focusing on his expectations for continued disinflation and eventually rate cuts. The March inflation data reinforces this view as it matches his suspicion that residual seasonality accounts for high inflation in January and February. Moreover, Waller has emphasized that tariffs are not inflationary though, importantly, he already conceded that the impact depends on size and implementation.
The Fed is locked in place. Fed speakers have stepped up the message that the focus now is on maintaining stable inflation expectations, and the underlying message is that effort could require rate hikes. At a minimum, the Fed doesn’t expect to change policy until the second half. Market participants, however, are not hearing that message yet; we think Powell will try to drive the point home this week. Volatile markets have not stopped the Fed from delivering that message. It’s looking like the Trump administration has ignited what amounts to an existential battle for a Fed that very well knows the mistakes of the 1970s.
Market Validation
The Fed is locked in place. Fed speakers have stepped up the message that the focus now is on maintaining stable inflation expectations, and the underlying message is that effort could require rate hikes. At a minimum, the Fed doesn’t expect to change policy until the second half. Market participants, however, are not hearing that message yet; we think Powell will try to drive the point home this week. Volatile markets have not stopped the Fed from delivering that message. It’s looking like the Trump administration has ignited what amounts to an existential battle for a Fed that very well knows the mistakes of the 1970s.
New York Times 4/14/25
In a speech on Monday, Christopher J. Waller laid out two scenarios that may play out for Mr. Trump’s tariffs, which the Fed governor described as “one of the biggest shocks to affect the U.S. economy in many decades.” How these levies impact both inflation and growth will impact how soon the Fed can again lower interest rates.
If a recession appears to be taking shape, Mr. Waller said he would support the Fed cutting interest rates “sooner and to a greater extent” than initially expected.
The first scenario Mr. Waller laid out assumes that the average tariff imposed on U.S. imports remains around its current level of 25 percent for an extended period. The second assumes a more modest 10 percent universal tariff, as other levies are removed over time.
In both cases, Mr. Waller argued, the effects on inflation would not persist so long as expectations about future price pressures remained under control.
Bloomberg 4/16/25
Federal Reserve Chair Jerome Powell again stressed the central bank's focus on preventing potential tariff-driven price hikes from triggering a more persistent rise in inflation.
“Our obligation is to keep longer-term inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem,” Powell said Wednesday in the text of a speech prepared for the Economic Club of Chicago.
Powell said policymakers would balance their dual responsibilities of fostering maximum employment and stable prices, “keeping in mind that, without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans.”
The remarks reinforce a message Powell has repeatedly emphasized, including most recently on April 4: Fed officials are in no hurry to change the central bank’s benchmark policy rate.
As they seek greater certainty about how President Donald Trump’s economic policies, especially on trade, will affect the US economy, Powell and other Fed policymakers have expressed support for holding rates steady.
“For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance,” Powell said.
In a speech on Monday, Christopher J. Waller laid out two scenarios that may play out for Mr. Trump’s tariffs, which the Fed governor described as “one of the biggest shocks to affect the U.S. economy in many decades.” How these levies impact both inflation and growth will impact how soon the Fed can again lower interest rates.
If a recession appears to be taking shape, Mr. Waller said he would support the Fed cutting interest rates “sooner and to a greater extent” than initially expected.
The first scenario Mr. Waller laid out assumes that the average tariff imposed on U.S. imports remains around its current level of 25 percent for an extended period. The second assumes a more modest 10 percent universal tariff, as other levies are removed over time.
In both cases, Mr. Waller argued, the effects on inflation would not persist so long as expectations about future price pressures remained under control.
Bloomberg 4/16/25
Federal Reserve Chair Jerome Powell again stressed the central bank's focus on preventing potential tariff-driven price hikes from triggering a more persistent rise in inflation.
“Our obligation is to keep longer-term inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem,” Powell said Wednesday in the text of a speech prepared for the Economic Club of Chicago.
Powell said policymakers would balance their dual responsibilities of fostering maximum employment and stable prices, “keeping in mind that, without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans.”
The remarks reinforce a message Powell has repeatedly emphasized, including most recently on April 4: Fed officials are in no hurry to change the central bank’s benchmark policy rate.
As they seek greater certainty about how President Donald Trump’s economic policies, especially on trade, will affect the US economy, Powell and other Fed policymakers have expressed support for holding rates steady.
“For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance,” Powell said.
April 10, 2025
SGH Insight
According to Beijing, the head of China’s trade and economic team (at the director-general level) has already received a call from his counterpart on the US side to hold ministerial-level talks with the US. But Beijing has rejected talks for now, repeating China’s three-point position to the American counterpart.
Xi will pay a state visit to Vietnam, Malaysia, and Cambodia starting next Monday (April 14) with an intent to sign a series of economic, trade and investment cooperation agreements with the three countries.
Market Validation
Xi will pay a state visit to Vietnam, Malaysia, and Cambodia starting next Monday (April 14) with an intent to sign a series of economic, trade and investment cooperation agreements with the three countries.
CNN 4/11/25
As the rest of the world received a 90-day respite, Trump escalated tariffs on China, saying the US will now charge an extra 145% on all Chinese goods that arrive in the US. In response, Beijing ratcheted up its own tariffs on American goods Friday to 125%, and the country’s leader — who Trump is urgently working to engage — warned China was “not afraid” of a prolonged trade conflict.
In private discussions hours before China announced new retaliatory tariffs, the Trump administration warned Chinese officials against such a move, according to a source familiar with the discussions.
The Chinese were also told – once again – that Chinese President Xi Jinping should request a call with US President Donald Trump.
BEIJING - Reuters 4/11/25
Chinese President Xi Jinping begins a three-nation tour of Southeast Asia next week, his first overseas trip this year, aiming to consolidate ties with some of China's closest neighbours as trade tension escalates with the United States.
Xi will visit Vietnam from April 14 to 15, and Malaysia and Cambodia from April 15 to 18, state-run Xinhua news agency said on Friday, after the Chinese president pledged this week to deepen "all-round cooperation" with China's neighbours.
As the rest of the world received a 90-day respite, Trump escalated tariffs on China, saying the US will now charge an extra 145% on all Chinese goods that arrive in the US. In response, Beijing ratcheted up its own tariffs on American goods Friday to 125%, and the country’s leader — who Trump is urgently working to engage — warned China was “not afraid” of a prolonged trade conflict.
In private discussions hours before China announced new retaliatory tariffs, the Trump administration warned Chinese officials against such a move, according to a source familiar with the discussions.
The Chinese were also told – once again – that Chinese President Xi Jinping should request a call with US President Donald Trump.
BEIJING - Reuters 4/11/25
Chinese President Xi Jinping begins a three-nation tour of Southeast Asia next week, his first overseas trip this year, aiming to consolidate ties with some of China's closest neighbours as trade tension escalates with the United States.
Xi will visit Vietnam from April 14 to 15, and Malaysia and Cambodia from April 15 to 18, state-run Xinhua news agency said on Friday, after the Chinese president pledged this week to deepen "all-round cooperation" with China's neighbours.
April 9, 2025
SGH Insight
With the focus rapidly shifting to tax cuts, this 10% baseline will now provide Treasury and Congress some certainty around a floor for potential tariff revenue raise with which to push negotiations along between the Senate and House Republicans. As opposed to most media and Washington analysts, we expect these to proceed quickly.
Market Validation
Bloomberg 4/10//25
President Donald Trump’s drive to enact trillions of dollars in tax cuts and raise the federal debt is on track after he and congressional leaders successfully corralled House Republican lawmakers to approve a Senate-passed budget outline.
The 216-214 vote on the budget — which outlines the parameters for the tax cut and debt ceiling increase — was delayed a day so Trump and Republican congressional leaders could assuage a dissident group of conservative spending hawks pressing for deeper cuts in safety-net programs.
The president worked the holdouts by phone and in a White House meeting. House Speaker Mike Johnson held a press conference to declare himself “committed” to coming up with at least $1.5 trillion in spending cuts. And Senate Republican leader John Thune joined the speaker to announce “a lot of” Republican senators shared the goal, though he stopped short of a commitment.
It was enough.
With the budget approved, the way is open for a follow-on package to cut taxes by up to $5.3 trillion over a decade and raise the debt ceiling by $5 trillion, in exchange for $4 billion in spending cuts. Republicans can now pass Trump’s tax-cut agenda solely on GOP votes, bypassing the need for negotiations with Democrats.
President Donald Trump’s drive to enact trillions of dollars in tax cuts and raise the federal debt is on track after he and congressional leaders successfully corralled House Republican lawmakers to approve a Senate-passed budget outline.
The 216-214 vote on the budget — which outlines the parameters for the tax cut and debt ceiling increase — was delayed a day so Trump and Republican congressional leaders could assuage a dissident group of conservative spending hawks pressing for deeper cuts in safety-net programs.
The president worked the holdouts by phone and in a White House meeting. House Speaker Mike Johnson held a press conference to declare himself “committed” to coming up with at least $1.5 trillion in spending cuts. And Senate Republican leader John Thune joined the speaker to announce “a lot of” Republican senators shared the goal, though he stopped short of a commitment.
It was enough.
With the budget approved, the way is open for a follow-on package to cut taxes by up to $5.3 trillion over a decade and raise the debt ceiling by $5 trillion, in exchange for $4 billion in spending cuts. Republicans can now pass Trump’s tax-cut agenda solely on GOP votes, bypassing the need for negotiations with Democrats.
April 6, 2025
SGH Insight
Monday Morning Notes, 4/7/25
Powell can’t save financial markets alone here. Fiscal policy, especially ill-conceived fiscal policy, is a powerful force, a lesson learned in the wake of the pandemic. It will take a lot more than a 25bp or 50bp rate cut to fundamentally change the tide.
Financial markets need a substantial rehaul of President Donald Trump’s tariff strategy. The ball is rolling downhill now; haphazard, occasional tariff negotiations with small nations won’t be enough to stop it, nor can foreign governments trust the US to maintain any negotiated deal unless Congress takes back control of tariffs.
Over the weekend, however, the Trump administration dug in on its agenda. Still, it’s worth noting that in previous iterations of this cycle, Trump has often escalated and then backed down, except for tariffs on China.
Market Validation
Powell can’t save financial markets alone here. Fiscal policy, especially ill-conceived fiscal policy, is a powerful force, a lesson learned in the wake of the pandemic. It will take a lot more than a 25bp or 50bp rate cut to fundamentally change the tide.
Financial markets need a substantial rehaul of President Donald Trump’s tariff strategy. The ball is rolling downhill now; haphazard, occasional tariff negotiations with small nations won’t be enough to stop it, nor can foreign governments trust the US to maintain any negotiated deal unless Congress takes back control of tariffs.
Over the weekend, however, the Trump administration dug in on its agenda. Still, it’s worth noting that in previous iterations of this cycle, Trump has often escalated and then backed down, except for tariffs on China.
Bloomberg 4/9/25
President Donald Trump announced a 90-day pause on higher reciprocal tariffs that hit dozens of trade partners after midnight, while raising duties on China to 125%.
The president’s about-face comes roughly 13 hours after higher reciprocal duties on 56 nations and the European Union took effect, fueling market turmoil and stoking recession fears. Trump came under massive pressure from business leaders and investors to reverse course.
“I have authorized a 90 day PAUSE, and a substantially lowered Reciprocal Tariff during this period, of 10%, also effective immediately,” Trump posted Wednesday on social media.
Stocks surged the most since 2020 on Trump’s abrupt announcement, with the S&P 500 Index rising over 8%, with almost every company gaining, and the tech-heavy Nasdaq 100 jumping the most since 2008. Goldman Sachs Group Inc. economists rescinded their forecast for a US recession.
Countries that were hit with the higher, reciprocal duties that went into effect Wednesday will now be taxed at the earlier 10% baseline rate applied to other nations, with the exception of China, according to a White House official. Trump said that more than 75 countries had contacted his administration to negotiate on trade barriers and “have not, at my strong suggestion, retaliated in any way, shape, or form.”
President Donald Trump announced a 90-day pause on higher reciprocal tariffs that hit dozens of trade partners after midnight, while raising duties on China to 125%.
The president’s about-face comes roughly 13 hours after higher reciprocal duties on 56 nations and the European Union took effect, fueling market turmoil and stoking recession fears. Trump came under massive pressure from business leaders and investors to reverse course.
“I have authorized a 90 day PAUSE, and a substantially lowered Reciprocal Tariff during this period, of 10%, also effective immediately,” Trump posted Wednesday on social media.
Stocks surged the most since 2020 on Trump’s abrupt announcement, with the S&P 500 Index rising over 8%, with almost every company gaining, and the tech-heavy Nasdaq 100 jumping the most since 2008. Goldman Sachs Group Inc. economists rescinded their forecast for a US recession.
Countries that were hit with the higher, reciprocal duties that went into effect Wednesday will now be taxed at the earlier 10% baseline rate applied to other nations, with the exception of China, according to a White House official. Trump said that more than 75 countries had contacted his administration to negotiate on trade barriers and “have not, at my strong suggestion, retaliated in any way, shape, or form.”
April 7, 2025
SGH Insight
Quick Follow Up
Bottom Line: This does not mean that we, or even Powell, think the next move will be a rate hike, and as we said last night, we wouldn’t advise anyone try to catch this falling knife. One of Powell’s goals at this juncture is to tamp down inflation expectations and provide the Fed more room to cut if (or when) the labor market turns. But we also think the takeaway is that the bar for cuts is higher than believed, which means conditions on the ground need to get decidedly uncomfortable to force a rate cut if inflation climbs as anticipated as tariffs pass through the economy.
Market Validation
Bottom Line: This does not mean that we, or even Powell, think the next move will be a rate hike, and as we said last night, we wouldn’t advise anyone try to catch this falling knife. One of Powell’s goals at this juncture is to tamp down inflation expectations and provide the Fed more room to cut if (or when) the labor market turns. But we also think the takeaway is that the bar for cuts is higher than believed, which means conditions on the ground need to get decidedly uncomfortable to force a rate cut if inflation climbs as anticipated as tariffs pass through the economy.
Traders Trim Bets for Fed Rate Cuts to Three by 2026
By Kristine Aquino
Bloomberg 4/9/25
Traders have promptly scaled back their expectations for Fed rate cuts by early 2026, and now see three quarter-point reductions by then. Prior to Trump’s announcement of a tariff reprieve, there were at least four such moves fully priced in, so the market is clearly taking the news as a reason to believe there’s less urgency for policymakers to act to support growth for now.
By Kristine Aquino
Bloomberg 4/9/25
Traders have promptly scaled back their expectations for Fed rate cuts by early 2026, and now see three quarter-point reductions by then. Prior to Trump’s announcement of a tariff reprieve, there were at least four such moves fully priced in, so the market is clearly taking the news as a reason to believe there’s less urgency for policymakers to act to support growth for now.
March 30, 2025
SGH Insight
Monday Morning Notes, 3/31/25
We have been on the road this past week, and here is what we have been discussing with clients:
· Tariffs, tariffs, tariffs. Trump’s tariffs policies are the single biggest shock hitting the US economy, and it’s a shock in two dimensions, magnitude and uncertainty. So far, the turmoil on Wall Street has not deterred Trump, and the Washington Post reported over the weekend that he is pushing his staff to be even more aggressive:
But Trump continues to muse to advisers that his administration should continue to escalate the trade measures and has in recent days revived the idea of a universal tariff that would apply to most imports, regardless of their country of origin, the people said, speaking on the condition of anonymity to describe private discussions.
In public and private, the president has said tariffs represent a win-win that will bring manufacturing jobs back to the United States and fill federal coffers with trillions of dollars in new revenue. He has also said he thinks he made a mistake in allowing advisers to talk him out of bigger tariffs during his first term, the people said, and that he thinks a single, simple duty on most imports could help prevent exemptions from weakening their impact. It’s unclear how seriously that proposal is being considered.
Trump’s drive to reorder the global economy through tariffs will not end anytime soon, presumably until the economic implications become too big to ignore politically. Prepare accordingly.
Market Validation
We have been on the road this past week, and here is what we have been discussing with clients:
· Tariffs, tariffs, tariffs. Trump’s tariffs policies are the single biggest shock hitting the US economy, and it’s a shock in two dimensions, magnitude and uncertainty. So far, the turmoil on Wall Street has not deterred Trump, and the Washington Post reported over the weekend that he is pushing his staff to be even more aggressive:
But Trump continues to muse to advisers that his administration should continue to escalate the trade measures and has in recent days revived the idea of a universal tariff that would apply to most imports, regardless of their country of origin, the people said, speaking on the condition of anonymity to describe private discussions.
In public and private, the president has said tariffs represent a win-win that will bring manufacturing jobs back to the United States and fill federal coffers with trillions of dollars in new revenue. He has also said he thinks he made a mistake in allowing advisers to talk him out of bigger tariffs during his first term, the people said, and that he thinks a single, simple duty on most imports could help prevent exemptions from weakening their impact. It’s unclear how seriously that proposal is being considered.
Trump’s drive to reorder the global economy through tariffs will not end anytime soon, presumably until the economic implications become too big to ignore politically. Prepare accordingly.
Bloomberg 4/3/25
Stocks were pummeled on Thursday, with the S&P 500 losing over 4.5% as the White House made clear that tariffs are here to stay. Meanwhile, volatility-targeting portfolios have another $15 billion to $20 billion of equity exposure to sell over the next few days, according to JPMorgan. The dollar fell along with precious metals. Crude futures tanked. OPEC+ unexpectedly increased oil supply by three times the planned amount in May to punish members who have been producing excess oil, particularly Kazakhstan and Iraq. The surprise move is seen as a deliberate effort to drive down prices. Treasuries rose, with the two-year yield dropping 15 bps as traders sought haven trades to escape the tariff aftermath. Elsewhere, Bitcoin fell over 4%. The next focus point will be Friday’s jobs report.
Stocks were pummeled on Thursday, with the S&P 500 losing over 4.5% as the White House made clear that tariffs are here to stay. Meanwhile, volatility-targeting portfolios have another $15 billion to $20 billion of equity exposure to sell over the next few days, according to JPMorgan. The dollar fell along with precious metals. Crude futures tanked. OPEC+ unexpectedly increased oil supply by three times the planned amount in May to punish members who have been producing excess oil, particularly Kazakhstan and Iraq. The surprise move is seen as a deliberate effort to drive down prices. Treasuries rose, with the two-year yield dropping 15 bps as traders sought haven trades to escape the tariff aftermath. Elsewhere, Bitcoin fell over 4%. The next focus point will be Friday’s jobs report.
April 3, 2025
SGH Insight
We have not changed our Fed call in the wake of the latest tariff announcements. Given what we have on the table now in data and theory, we anticipate the Fed will hold its ground until the job market shows signs of strain and then to proceed by cautiously balancing between the two mandates. In theory, this is just more risk to both sides of the mandate. That speaks to the framework we have laid out, and against a May or June cut.
To be sure, we retain a healthy degree of caution. We can’t dig in too deeply here. It’s a long time to June, in theory this is a “sudden stop” type of shock, the Fed may need to manage a disorderly fall in risk assets, there exists the possibility of political pressure on the Fed, and the Fed may misread the nature of this shock as more transitory than it really is.
The path ahead for the Fed and markets depends on whether the Fed views Trump’s trade policies as a transitory shock, and whether that is the correct assessment.
This suggests that Powell will deliver a “hold steady” message in tomorrow’s speech. He can fall back on the story that the data is sufficiently strong that the Fed can remain on hold as it assesses the impact of tariffs in the context of the totality of fiscal policy.
That said, we expect Powell will backtrack on his dovish press conference inflation messaging. That messaging seemed ill-advised, and it didn’t reflect a consensus of FOMC participants. Repeating it will appear tone-deaf when inflation forecasts are now heading above 4%, deepen expectations of easier policy, and would signal that the Fed doesn’t take the price mandate seriously.
We advise market participants to watch for any sign from Powell regarding the Fed willingness to endure pain on the employment side of the mandate.
Market Validation
To be sure, we retain a healthy degree of caution. We can’t dig in too deeply here. It’s a long time to June, in theory this is a “sudden stop” type of shock, the Fed may need to manage a disorderly fall in risk assets, there exists the possibility of political pressure on the Fed, and the Fed may misread the nature of this shock as more transitory than it really is.
The path ahead for the Fed and markets depends on whether the Fed views Trump’s trade policies as a transitory shock, and whether that is the correct assessment.
This suggests that Powell will deliver a “hold steady” message in tomorrow’s speech. He can fall back on the story that the data is sufficiently strong that the Fed can remain on hold as it assesses the impact of tariffs in the context of the totality of fiscal policy.
That said, we expect Powell will backtrack on his dovish press conference inflation messaging. That messaging seemed ill-advised, and it didn’t reflect a consensus of FOMC participants. Repeating it will appear tone-deaf when inflation forecasts are now heading above 4%, deepen expectations of easier policy, and would signal that the Fed doesn’t take the price mandate seriously.
We advise market participants to watch for any sign from Powell regarding the Fed willingness to endure pain on the employment side of the mandate.
Bloomberg 4/4/25
Federal Reserve Chair Jerome Powell said the economic impact of new tariffs is likely to be significantly larger than expected, and the central bank must make sure that doesn’t lead to a growing inflation problem.
“While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected,” Powell said Friday at the Society for Advancing Business Editing and Writing annual conference. “The same is likely to be true of the economic effects, which will include higher inflation and slower growth.”
Despite that view, in a question-and-answer session following his speech, Powell emphasized the central bank doesn’t need to hurry to adjust interest rates as policymakers wait for more clarity on the administration’s policies and their impact.
Bloomberg 4/4/25
Yields largely failed to react to Fed Chair Jerome Powell and stocks saw little relief from his speech. The initial read is that Powell has failed to support the market narrative of much easier monetary policy in the wake of tariffs. If anything, he seems to be trying to suggest a more hawkish reaction function.
Powell said the Trump tariff increases were larger than expected and that the same is likely to be true of the economic effects, which will include higher inflation and slower growth. If there are any equity traders who are hoping for a Fed put, they’re going to have to keep hoping.
Faster inflation with slower growth is any central banker’s least favorite cocktail, and faced with that combination, the Fed seems likely to be cautious. Powell said it was well-positioned to wait. However, the Fed would respond to a persistent inflation problem.
Federal Reserve Chair Jerome Powell said the economic impact of new tariffs is likely to be significantly larger than expected, and the central bank must make sure that doesn’t lead to a growing inflation problem.
“While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected,” Powell said Friday at the Society for Advancing Business Editing and Writing annual conference. “The same is likely to be true of the economic effects, which will include higher inflation and slower growth.”
Despite that view, in a question-and-answer session following his speech, Powell emphasized the central bank doesn’t need to hurry to adjust interest rates as policymakers wait for more clarity on the administration’s policies and their impact.
Bloomberg 4/4/25
Yields largely failed to react to Fed Chair Jerome Powell and stocks saw little relief from his speech. The initial read is that Powell has failed to support the market narrative of much easier monetary policy in the wake of tariffs. If anything, he seems to be trying to suggest a more hawkish reaction function.
Powell said the Trump tariff increases were larger than expected and that the same is likely to be true of the economic effects, which will include higher inflation and slower growth. If there are any equity traders who are hoping for a Fed put, they’re going to have to keep hoping.
Faster inflation with slower growth is any central banker’s least favorite cocktail, and faced with that combination, the Fed seems likely to be cautious. Powell said it was well-positioned to wait. However, the Fed would respond to a persistent inflation problem.
March 18, 2025
SGH Insight
The Bank of Japan (BOJ) is almost certain to hold its policy rate steady at 0.5% this week though, as we have been writing, the case to raise rates on May 1 has been steadily building in the background.
Rising inflation, the latest bid by unions for wage increases and importantly, a higher yen, all have been supporting BOJ governor Kazuo Ueda’s bid to secure a “virtuous cycle” of wages and prices, so he can push the policy rate higher.
However Ueda’s caution to avoid rattling markets or signal that the Bank is stepping up the pace of its hikes is likely to limit his post March 18-19 meeting press conference comments to hints at the Bank’s readiness to hike again at a future meeting.
Market Validation
Rising inflation, the latest bid by unions for wage increases and importantly, a higher yen, all have been supporting BOJ governor Kazuo Ueda’s bid to secure a “virtuous cycle” of wages and prices, so he can push the policy rate higher.
However Ueda’s caution to avoid rattling markets or signal that the Bank is stepping up the pace of its hikes is likely to limit his post March 18-19 meeting press conference comments to hints at the Bank’s readiness to hike again at a future meeting.
BBG 3/19/25
Ueda suggested the BOJ won’t necessarily wait much longer to
determine the impact from US trade policies before proceeding
with its next rate hike. He said the BOJ may be able to discern
how uncertainties on trade policies could affect its outlook in
early April by watching data such as sentiment gauges.
* This implies the BOJ could be in a position to build a case
that it’s safe to lift rates again as soon as its April 30-May 1
meeting.
* All in all, Ueda appeared to less worried about US factors
than he was in September, when the BOJ paused rate hikes due to
downside risks it saw in the US economy.
Ueda suggested the BOJ won’t necessarily wait much longer to
determine the impact from US trade policies before proceeding
with its next rate hike. He said the BOJ may be able to discern
how uncertainties on trade policies could affect its outlook in
early April by watching data such as sentiment gauges.
* This implies the BOJ could be in a position to build a case
that it’s safe to lift rates again as soon as its April 30-May 1
meeting.
* All in all, Ueda appeared to less worried about US factors
than he was in September, when the BOJ paused rate hikes due to
downside risks it saw in the US economy.
News and Events
SGH Macro Advisors hosts occasional roundtables and events for clients and senior policymakers.