The Macro Trading Floor The Tariff Mismatch Theory
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Aug 1, 2025 Economic uncertainties are front and center as experts debate the subtle effects of tariffs on growth. The discussion includes labor market conditions and the Federal Reserve's challenge with inflation amidst skeptical monetary policy. Recent tariffs on copper and rare earths are examined for their unexpected influences on housing prices. Additionally, the Canadian banking system’s oligopoly and the evolving dynamics of currency trading are explored, with some light-hearted cultural anecdotes thrown in for good measure.
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Powell's High Bar to Cut Rates
- Jerome Powell's bar to cut interest rates is already very high since he's not hiking anymore.
- The Fed shows less confidence in the neutral rate and calls current policy only "a bit restrictive."
Tariff Mismatch Slowing Economy
- US economy faces conflicting signals from tariffs and fiscal deficits creating a "tariff mismatch."
- This mismatch could slow nominal growth, complicating Fed decisions on policy easing.
Volatility Low Before Seasonal Spike
- Volatility is currently at lows entering typical seasonal upticks in risk asset volatility.
- Buying volatility now can be advantageous as gamma is cheap and likely to realize gains short term.
