Trump’s announcement of unexpectedly steep tariffs against Canada, Mexico and China to stop the flow of fentanyl – which incidentally is just the first shot across the bow in the latest global trade, one which will quickly in most other countries – may very well spark an inflationary spike as Capital Economics chief economist Paul Ashworth believes, to wit:
Since exports to the US account for around 20% of their GDP, today’s tariffs could plunge both the Canadian and Mexican economies into recession later this year. The resulting surge in US inflation from these tariffs and other futures measures is going to come even faster and be larger than we initially expected. Under those circumstances, the window for the Fed to resume cutting interest rates at any point over the next 12 to 18 months just slammed shut.
But even without Trump’s tariff announcement, the tide was already starting to flow out, and as Michael Hartnett writes in his latest Flow Show note, monetary easing has already peaked: consider that in 2024 there were 164 global central bank rate cuts vs 32 hikes, while thus far in ’25 we have seen 10 cuts vs. 3 hikes…
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