MOOSPEAK
Tariffs and the Supremes, Inflation and GDP
Friday, the Supreme Court voted 6-3 that under existing law a President cannot invoke emergency powers in order to set tariffs. It was considered a win for the Dollar, for US assets, for US consumers and taxpayers, for US retail and for congressional hegemony over the nation’s purse strings. As such the court decision steadied the tariff-setting process lending more predictability and permanence, but it left the question of “what next?” unanswered.
The stagflation argument holds that tariffs dampen US economic performance and weaken the Dollar. That the Supreme Court would send down its ruling on tariffs this month, and probably an adverse one at that, was also common knowledge. The Dollar has been improving for three weeks on the rumor that US tariffs would been struck down and when it happened this Friday the markets sold the news. The Dollar slipped fractionally. It was a minor but telling response-- Tariffs are not gone. They will merely take another form. They will be less targeted and as a result could be more onerous overall. The only certainty is that we are in for another period of uncertainty while the new tariff regime gets sorted out.
In addition to this week’s court ruling, government data turned less promising. The Fed’s favorite inflation gauge, December core PCE came in hotter at 3.0% than the latest December consumer price index (+2.4%). Meanwhile, Q4 GDP came in at 1.4%, or about half of expectations (+3.0%). That was after GDP Now estimates of 3.5% to 5.2% by the Atlanta Fed. The Federal shutdown was ascribed blame for GDP’s shortfall.
In the most superficial sense, hot PCE inflation and weak GDP are offsetting as far as the Federal Reserve response is concerned. The CME futures market is betting as much. The chances of a June Fed rate cut dropped from 63% last week to 51% this week. That’s now essentially a bet that a rate cut will happen or it won’t. More uncertainty.
Finally, last week’s threat of widespread AI-induced joblessness coming down the pike has given investors, not to mention job-seekers, a longer term and more serious concern. Even more uncertainty.
Uncertainty can be annoying. The good thing about it, however, is that it evaporates on its own, one day at a time, and faster if you take the time to pay attention.
