The Signs Aren’t Good for Inflation, Jobs, or Growth…
Oh, the weather outside is frightful…
Lest you think I’m a few months behind—or way too many months early—in prepping for Xmas, I am not. It’s March, 2025… and the weather outside is looking most frightful.
Dreadful, really.
And by weather, I mean the US economy and financial markets.
I said this was coming.
Got lots of pushback on it, too.
El Jefe, you gargantuan goombah! You have no clue what you’re talking about! You’re an idiot with the economic acumen of a potted petunia!
Generally speaking, all of that might be true.
But when it comes to tariffs and inflation, I tend to be less potted petunia and more reader of the obvious tea leaves.
I wasn’t aiming to write this dispatch this week. Truth be told, I’d already written what I wanted to say for the week and I’m prepping for a drive up to Porto for a few days, assuming my wife, Yulia, feels better (she has a mild bout of flu).
And then DJ Trump decided to announce tariffs would start on Mexico and Canada (in addition to his tariffs on China) on Tuesday last week… but wait! Quick as a blink, many of the tariffs disappeared… anything covered by the trade deal Trump signed with Mexico and Canada in his first term was suddenly exempt from tariffs again! What the actual…?
Trump announced the tariffs were coming into effect… and then they supposedly came into effect… and now tariffs on anything covered by the USMCA free-trade agreement have been delayed again for at least another month.
What gives?
Well, I have s sneaky, teensy tiny suspicion that the market reaction last week had more than a little to do with Trump’s U-turn…
The markets promptly told Trump, “That El Jefe guy is far less of a potted petunia than you are! At least he understands that tariffs cause inflation!”
Stocks were down big.
Crypto was down big.
The US dollar fell out of bed.
Gold soared to yet another record high above $2,950 per ounce.
And then, the Atlanta Federal Reserve Bank updated its GDPNow forecast for the first quarter’s GDP reading… and it had plunged! At the end of February, the Fed projected GDP growth of about 2.3%.
In the span of a couple of business days—literally—the ATL Fed revised its expectations, suggesting GDP will now contract by 2.8%.
We’re talking about a reversal of more than five percentage points. That’s uuuuuge, in Trumpian language. Outside of the pandemic, I cannot think of any other point in our shared timeline where expectations reversed course so quickly and so sharply.
Expectations of higher prices and a recession are spreading like COVID.
Even Treasury Secretary Scott Bessent is warning of a “detox” period for the economy, reports Bloomberg, “as the Trump administration shifts the basis for growth away from the government and toward the private sector.”
Detox, hmmm? Sounds… nasty…
And as I’ve been tweeting over on Twitter/X, we’re going to see nasty jobs reports starting in April. The willy-nilly axing of tens of thousands of federal workers leads to the necessary axing of tens of thousands of private-sector workers whose companies support the federal government in innumerable ways.
We’re going to see bankruptcies start to rise.
We’re going to see home foreclosures start to rise.
We’re going to see people/families evicted from homes and apartments because they can no longer afford the rent.
And still… egg prices will keep going up.
Alas, all of this is leading to a place where Trump wants the economy to go… which I have also been writing/tweeting about. Namely: Trump wants a crisis. He needs a crisis.
So he is baking a crisis that doesn’t hurt him or Elon or politicians or any of the billionaire class.
Every other American, however, will shoulder the pain that’s brewing.
Trump wants a crisis because it’s the most brutal way to achieve what he promised on the campaign trail: lower prices and lower interest rates.
Jerome Powell and the Fed were never going to play ball with Trump. The Fed is independent; it doesn’t care what any president or any politician wants.
Trump has always known that.
But when no one wants to play with you, what do you do?
Well, you can knock over all the pieces that others were playing with.
Now, Trump is knocking all the pieces over to create a mess.
He’s doing so because he knows where this ends: The Federal Reserve will have to step in with a rate cut, probably at the May meeting, but certainly by June. Heck, perceptions of the economy are degrading so rapidly that the Fed could very well announce an emergency meeting at which it cuts rates by 0.5 percentage points before May.
All of which means… gray skies are gonna clear up, and financial markets are going to put on a happy face.
Which, I guess, is my way of holding your hand through this moment.
Stocks and crypto are suffering explicitly because of Trump’s actions. Prior to tariffs being announced, there were no exogenous reasons for financial markets to crater. None.
There were zero reasons for economic growth to plunge. Sure, the economy might have slowed from 3-plus percent to 2-something percent… but for GDP expectations to pull a Titanic and sink so rapidly (a more than five percentage point decline in two days), well, that doesn’t happen. That’s not a thing anywhere in modern economic history.
That takes effort.
It takes someone in a position of power to purposefully overturn all the pieces on the chessboard to achieve a result that wasn’t otherwise going be achievable.
And even though Trump halted (again) a bunch of the tariffs for yet another month… businesses now don’t know what to expect… Are tariffs coming into force as promised now next month? Will there be yet another delay?
Businesses and markets need certainty to make decisions…
The media has been full of stories like the Pennsylvania car dealership owner who told Fox Business he’d lost a truck sale because the price had jumped 20% on the back of tariffs…
The New York Times yesterday: “Markets Tumble as Economic Fears Grow… The S&P 500 fell sharply in early trading on Wall Street, adding to last week’s losses, as Beijing imposed retaliatory tariffs.”
Buckle up—because the uncertainty is just getting started…
We will get through this in time.
The Fed will cut rates.
The inflation reading will begin to retreat.
Trump will claim victory and remove the tariff threat.
And the financial markets will begin to heal—probably pretty rapidly, since there’s nothing wrong with the underlying economy.
But from here to there will be dyspeptic. So, just hold the line.
All will be better.
Probably by mid-summer.
Not signed up to Jeff’s Field Notes?
Sign up for FREE by entering your email in the box below and you’ll get his latest insights and analysis delivered direct to your inbox every day (you can unsubscribe at any time). Plus, when you sign up now, you’ll receive a FREE report and bonus video on how to get a second passport. Simply enter your email below to get started.
