April inflation (CPI) came in at 2.3% this morning.
That's in-line with the number we discussed yesterday, and that's the lowest inflation since early 2021, and lower than the level of inflation in September of last year, which is the month the Fed kicked off its easing campaign. Still, the Fed is holding the real rate at 200 basis points (Fed funds rate minus inflation) ; historically tight levels.
And with the 90-day tariff windows not due to close until July and August, the next big focus for markets will be the budget bill and debt ceiling raise -- along with the rising debt service burden which is being amplified by the Fed's chosen interest rate level.
Moody's has already telegraphed a U.S. credit downgrade (back in March), which only matters to the extent that it could be a catalyst for a broader market reckoning on global sovereign debt. With that in mind, highly indebted countries with no credible growth plan -- no plan to grow the denominator in Debt/GDP -- could find themselves in trouble. This brings us to Mr.Trump's important speech today in Saudi Arabia, which draws the distinction.
President Trump is building a new global coalition of trade partnerships and mutually beneficial relationships around re-industrialization, including abundant and affordable energy (access to U.S. energy), AI infrastructure and innovation (access to U.S. chips and compute), and military commerce (access to U.S. armament and security) -- all in pursuit of each countries respective national interests.
This re-orientation is already resulting in trillions of dollars of business deals and commitments.And this is an explicit rejection of the globalist, centralized control, climate-agenda driven managed decline of the past four years. There's a new growth agenda happening in the world. And conversely, there are some countries doubling down the de-growth climate agenda. I suspect we'll begin to see the distinction in sovereign debt markets in the coming months.
The trade war "escalate phase" resulted in the escalator down for stocks. The "de-escalate phase" has resulted in the escalator UP and a full V-shaped recovery in stocks. Does the de-escalation with China, in the form of a 90-day tariff reduction, mean a trade deal is coming with primary target of the trade war?;Perhaps that seems unlikely. Mr.Bessent talked about three issues that were discussed with the Chinese delegation over the weekend.
The Chinese currency wasn't one of them. China's artificially weak currency is the cornerstone of the Chinese economic model. And there will be no meaningful change in global trade imbalances so long as China is allowed to keep undercutting the world on exports, by pinning down the value of the yuan;But a 90-day Hiatus buys some time.
Remember, just a few weeks ago, Bessent called on the IMF and World Bank to "return to their mission." Doing the jobs they were created to do would mean policing China's manipulative economic policies (which includes currency manipulation).
The Mr.Trump team smartly wants to leverage institutional confrontation on China's rigged economic model, which would (importantly) help build global buy-in to isolate China. Now, the Fed has been holding rates steady since December, on the anticipation that tariffs would be inflationary.The actual data has been disinflationary.
Now the tariffs have been broadly slashed, at least for a while. One might think that would reinforce the disinflationary trend. Yet the market is now pricing in fewer rate cuts (implying more inflation pressures following the China 90-day tariff rereduction
It's expected to tick down from a year-over-year rate of 2.4% in March to 2.3% in April. That would be the lowest inflation since early 2021, and lower than the level of inflation in September of last year, which is the month the Fed kicked off its easing campaign -- with a 50 basis point rate cut.
Kindly,Subscribe with your Valid Email Address and receive Relevant Notifications to your active Device with Professionalism.
Thankyou for the Scheduled Quality Ample Time.