The Fed is not getting the inflation data it would need to consider a rate cut next week

Every reputable economist and a majority of Americans perceive the tariff saga as erratic and ego-driven, and even the average Joe expects higher prices.

See the erratic judgment table from Reuters.

BlackRock CEO Fink told the press “the barrage of changes is paralyzing American consumers and businesses — and that’s already hurting the economy.” People are pausing.  “Talking to CEOs throughout the economy, I hear that the economy is weakening as we speak.”

Unless something changes, the US is on the path to losing its status as the exceptional country and more importantly, its reserve currency status. As we wrote several months ago, the US has that position because its market are the biggest, most transparent, and most varied in the world, plus backed up by a Constitutional system that guarantees the right to private property.

Now other analysts are acknowledging we could lose some of that, including the “extraordinary privilege” of cheaper government financing. Trump is whittling away some of that. Reuters’ Dolan writes “Financing metrics, such as long-term U.S. borrowing costs, don't yet suggest that a major fracture is afoot.”

Worse, former IMF economist Rajan says “The claim that the dollar's attractiveness is an exorbitant burden rather than an exorbitant privilege is unpersuasive, especially when those making such arguments are so reluctant to give up the burden," he said, referring to the administration's regular support for the dollar's global status while promoting policies that undermine it. (Reuters)

A major fracture could well be lurking in the bushes. It’s not only foreign leaders talking about it, Now it’s also the chief economist at JPMorgan. Loss of capital funding because of Trump’s unreliability PLUS pending inflation together point to a rise in yields. As noted early in Trump’s tenure, many analysts were forecasting 5% for the 10-year note. The tariff crisis, recession talk and stock market slide took attention away from that bigger point.

The Fed is not getting the inflation data it would need to consider a rate cut next week, with 70.9% seeing no change in May, either. By the June meeting, we should be seeing the tariff effect on inflation, but Fed funds bettors have not yet gotten the message. Only 22.8% expect rates unchanged in June. A big 57.2% expect a cut with the rest expecting more.

Forecast

We got the minor dip we expected, if a day late, and it’s continuing today. This could be a function of not-too-bad inflation data overriding more tariff talk, targeting the EU this time. Trump seems to be saving Japan and the UK for later. But we can’t speak of tariff fatigue because it’s getting all too real.

For forecasting purposes, too much depends on the verbal garbage spilling out of the White House. There is hardly anything to support the dollar and so we wonder if the euro pullback is not just chartists responding to the extreme overbought condition.  One warning—if the Senate passes the budget bill and the government does not shut down at midnight, some will see that as dollar-positive. We’d say it would be just a small glitch in the overall dollar negativity and not to be trusted.

Tidbit: Japan is selling tons of rice from its strategic reserve because of a shortage that is due to crop failures and many other unknown factors. A 4-pound bag costs $27 and customers are limited as to how much they can buy at any one time (like eggs in the US). This is a rare event. See the story at  https://www.nytimes.com/2025/03/13/world/asia/japan-rice-prices-auction.html.

Tidbit: The mainstream press is (mostly) in a state of hysteria. We see headlines like “Democracy Dies in Dumbness” and a subhead “This isn’t going to end well.” And that’s the polite people. Well, yes, maybe, but so far we lack Evidence.

Inflation is not rising, even if everyone thinks it will and soon, due to tariffs. Job creation is still going on, even if companies have hit the pause button and the hunt for illegals is imagined to be fatal for construction and farming.

What about autocracy, as in the mass government firings and even the First Amendment rights of a green-card protester? So far the courts are pushing back.

Granted, Trump and his lackeys are doing nearly everything unbelievably badly. They are reckless, impulsive, uninformed and unprofessional, and not a little mean or even sadistic. But while “society” is appalled and frightened, the economy is not in bad shape, yet. The big banks are raising their stagflation/recession probabilities, but nobody has a number over 50%. This is a function of the robustness and resilience of the US economy, almost certainly the highest in the world on both counts.

We are waiting for the mud to hit the fan.

And the worse damage is to social norms. We expect politicians to lie, but lying on this scale is something new, especially when joined with the scams and grifts.

Trump and cronies are bad for women, minorities, and civil rights in general. The only people safe from their rampage are white men with non-government jobs. We have been here before. It was named the 1950’s. It took another 15 years to get the Civil Rights Act and another 30 for implementation to have become visible and viable. 

Of course it’s not going to end well. The economy will very likely go into stagflation and heaven only knows how long it will take to beat back the white supremacist Neanderthals. Again. The social change wrought since the 1950’s is not going to be murdered by Trump, but it’s going to be another long, hard slog. 

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