Reacting to PCE Data and Previewing Trump's April 2 Tariffs
Mar 28, 2025
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Stephanie Roth, Chief Economist at Wolfe Research, and Lauren Goodwin, Chief Market Strategist at New York Life, delve into the implications of recent PCE data and the upcoming tariffs set by President Trump. They highlight the potential inflation risks and their impact on consumer spending and investment trends. Mike Haridopolos, a Republican US House Representative, discusses political dynamics surrounding these tariffs and their effects on economic policies. The conversation reveals tough challenges businesses face amidst shifting market conditions.
Economists warn that President Trump's unclear tariff policy could reignite inflation, complicating the Federal Reserve's management of economic stability.
Consumer spending is shifting from services to goods as individuals anticipate higher tariffs, indicating potential long-term impacts on growth patterns.
Investment strategies are being revised to include diversified portfolios and increased exposure to high-yield bonds due to current market volatility.
Deep dives
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Economic Uncertainty and Market Reaction
Recent discussions highlight the broader economic uncertainty driven by governmental changes in trade and immigration policy, which are causing fluctuations in market confidence. The S&P index has retreated by about 7-8% from its peak, reflecting apprehension in the face of potential tariffs and alterations in the labor market. Economists express concern that while some investment outcomes could improve in the medium term, the immediate impact of tariffs is likely to disrupt both pricing and consumer spending habits. This situation emphasizes the volatility present in current financial markets as analysts await clearer economic indicators.
Consumer Spending Trends
Data indicates a shift in consumer spending, with a noticeable decline in services and a pivot toward goods, possibly in anticipation of higher tariffs. Reports show that while retail sales have remained robust, overall spending patterns suggest a front-loading strategy among consumers trying to minimize costs before price increases take effect. This behavior may not sustain in the long run, and there is an expectation of a decline in growth as consumer sentiment is negatively impacted by rising uncertainty and expenses. In particular, high-income consumers, historically significant drivers of retail growth, may scale back spending amid these changes.
Federal Reserve's Response to Inflation
The Federal Reserve faces a complex situation as it navigates between managing inflation and sustaining employment levels. Recent inflation data suggest persistent pressures, complicating any potential rate cuts in response to economic slowdown. Analysts predict that the transition from tariff implementation to noticeable consumer price increases could take approximately three to six months, highlighting the lag effect in economic adjustments. This timeline will be critical as the Fed assesses its potential actions to balance inflation concerns with the need for economic stability.
Investment Strategies Amid Market Volatility
Investment strategies are adapting to reflect current market volatility, with experts advocating for diversified portfolios that incorporate international and alternative investments. Tactical adjustments include increasing exposure to high-quality dividend-paying equities and reducing reliance on U.S. large-cap growth stocks as the market environment shifts. Furthermore, analysis suggests a strong outlook for high-yield bonds as reliable income sources amidst rising economic risks. This strategy balances the need for resilience in asset allocation while anticipating potential adjustments to market conditions in the near future.
Watch Tom and Paul LIVE every day on YouTube: http://bit.ly/3vTiACF. Bloomberg Surveillance hosted by Tom Keene & Paul SweeneyMarch 28th, 2025 Featuring: 1) Tiffany Wilding, Economist at PIMCO, Stephanie Roth, Chief Economist at Wolfe Research, and Lauren Goodwin, Chief Market Strategist at New York Life Investments, react to PCE and offer their US market and economic outlook. Today's data comes as Fed officials, such as the president of the Federal Reserve Bank of Boston Susan Collins, have recently warned about inflation reigniting due to President Trump's unclear tariff policy. 2) Sevasti Balafas, CEO at GoalVest Advisory, brings us into the market open and talks asset allocation and offers her stock picks. It comes amid a global selloff in equities as investors have been selling equities in the run up to April 2, ahead of President Donald Trump’s tariff deadline. 3) Mike Haridopolos, Republican US House Representative from Florida, talks about a slew of DC headlines, including tariffs, and his focus on the Consumer Financial Protection bureau and its future. Some of the top Washington stories include Defense Secretary Pete Hegseth urging China deterrence on a trip clouded by Signal uproar and US seeking to control Ukraine investment and squeezing out Europe. 4) Selma Hepp, Chief Economist at Cotality, discusses the outlook for mortgage rates in 2025 and 2026 and why they may remain sticky amid so much economic uncertainty. Freddie Mac said in a statement this week that the average for 30-year loans was 6.65%, down from 6.67% last week. It was the first time in three weeks that mortgage rates fell, as house hunters are finding more choices on the market in time for the country’s key spring selling season. 5) Lisa Mateo joins with the latest headlines in newspapers across the US, including the Wall Street Journal article on the significance of women wearing ties and a piece from the New York post on President Trump's childhood home selling at a steep discount.
