- Markets are watching fiscal policy and have concerns.
- Markets are looking for more fiscal discipline.
- Fed won’t buy bonds in primary auctions.
- Hard data shows economy doing quite well, scant sign of tariff impact so far.
- If tariffs are closer to 10%, then economy is good shape for 2H.
- If tariffs settle down, Fed could be in position to cut in later part of the year.
- Much more optimistic now relative to last month on tariffs.
- Very hopeful the current path of administration is a good one.
- Firms are pausing but not cancelling plans.
- Continue to believe tariffs will be a one time price increase.
- Standard Fed playbook is to look through one time price impact.
- Doesn’t see much from tariffs to drive inflation persistently.
- Everyone in markets expected more fiscal restraint from tax bill.
- As long as economy gets back on good path, could reinvigorate demand for US assets.
This shouldn’t be new to those who read his April speech where he laid out his two scenarios. His scenario where tariffs settle around 10% on average or less is playing out, so he is less inclined to cut immediately and will wait for the second part of the year (which is still bad for long term bonds as inflation concerns remain high).
This article was written by Giuseppe Dellamotta at www.forexlive.com.
