“A picture of increased uncertainty, stagnation of business activity, and rising prices,” is the scenario indicated by the PMI report. The trust of the Fed (and in the Fed) is intact, but it is the next one that could be abolished if there is no rudder.
Donald Trump 2.0 presents an essential difference with its original version. Far from being a tonic for the “animal spirits” it operates as a crusher. It is a pity because President number 47 is more energetic and bold. It promotes an agenda that this time does not stop any “collaborator” raised. He knows what he wants, and knows that he must attack quickly on all fronts to impose his vision of rennet before the opposition, and the world, leave his astonishment. The idea of forging a new international order, given the need to confront with China in order to preserve global supremacy, encourages this lightning offensive from which they participate -as did not happen in its first mandate – Elon Musk and other high -tech business leaders. The problem – at this point, very evident – is the agenda itself. A defective agenda, propelled with frenzy, is doubly dangerous. Trump was already notified. If you do not correct the course, there is a recession on your way. It would be the second in his service page. The first is attributable to Covid. But the one that appears on the horizon is his. With the abulic Biden in charge, until 45 days ago, the US economy was the envy of the world, according to the cover of The Economist. Today is a great question sign. One more.
What Trump damaged in record time is trust. Of entrepreneurs and consumers. And of the United States traditional allied countries. What Trump restored successfully since he assumed was the confidence that the bond market denied him, But it is obvious that the real economy still stopped dry. In January, the basket of leading economic indicators sank. In February, the services sector was contracted, for the first time in 25 months. The optimism collapsed suddenly. Replaced it, According to the PMI report, “a picture of increased uncertainty, stagnation of business activity, and rising prices.” What happened? The new administration agenda: the rise of tariffs, more declared than executed; expense cuts; Geopolitical turns. Small companies stopped their investment plans until they clarify. The CEO of Alcoa says about the announced increase of 25 percentage points in aluminum tariffs: “If it comes out, it will cost about 100,000 jobs.”
Confidence is consumers and Fed’s trust
Consumer confidence collapsed in February for the third consecutive month. There are no doubts here. Already in January, the consumer adjusted his belt. And reduced the expenditure 0.2%. Not because Strays in front of you: its available personal income increased 0.9%. He wants to save more before the uncertainty and expectation of substantially higher inflation, among other reasons, due to the future incidence of tariffs. “The mention of international trade and tariffs” climbed in the surveys of The Conference Board. And the proportion of consumers who anticipate a 12 -month recession viewed at the highest level of the last nine months. Jeff Schmid, president of Kansas City Fed, says. “Inflation expectations (consumer’s feeling surveys) are imperfect, but their strong increase is a growing concern.” The trust of the Fed (and in the Fed) is intact, but it is the next one that could be abolished if there is no rudder.
Fed Federal Reserve Powell.jpg
Federal Reserve
A drop in GDP in the first quarter lies thus just around the corner. A recession, still a couple of steps beyond. The real -time prognosis of the Atlanta Fed, which is remarkably volatile, went from anticipating an expansion of the GDP of 3.9% (13 days after Trump assumed) to a retraction of 1.5%. The brake of consumption is an explanation. A jump of almost 30% of imports – having changes in tariffs – is the other novelty. Presumably, an only time effect. But it is not the only prognosis that turned red. We already cite the surprise replication of the leading basket in January that twisted significant advances in November and December. And on Wednesday the treasure yield curve was invested (10 years versus 3 months), another sign that will persist inoculate distrust in financial markets. Long rates will fall, as Trump ordered, but with the fate of the economy in the pillory, it will not be a reason for joy.
How likely is a recession, then? Negative dance factors are clearly reversible. An advertisement and expectations are still traveling, pregnant with uncertainty, but still free of the damage that may cause consummated facts. The consumer scares and retracts, but if his doubts are cleared, he has income to resume his expansive spending pattern. His inflation expectations shot up; Those implicit in bond contributions, no. And effective inflation – according to the median of the consumption deflator or retail prices – has been stable since August. The Fed can lower its rates if the labor market weakens, once Trump defines a reasonable policy framework. You can lower them the same if Trump does not, but their effectiveness will be doubtful. It was already said here until tiredness: the president is the one who has the key to overcome or complicate the trance.
Tariffs, validity and the Great Britain model
This Tuesday, in principle, 25% tariffs on Canada and Mexico would come into force. If so, it travels to a frontal collision. And even with a moderate aliquot, a sharp prognosis of recession would be given rise. Adduce advances (certain or not) in the fight against illegal immigration and fentanyl and postpone or soften the decision – far, the most likely scenario – would be an aspirin of relief. However, uncertainty and consequent corrosion would prolong. Trump will not cease until closing a “Deal”. A commercial agreement with Great Britain without touching the tariff structure -A possibility he contemplated after his meeting with Prime Minister Starmer- look like the best available solutionabove all, if it provides a model to follow for other countries.
A shake of the bag would serve to accelerate the times before something important is broken. But here a circular trap nests. While the feeling “Bear” already catches 60.6% of retail investors, twice the historical and maximum of the last year, Wall Street will not be scared before checking that the tariff rise is executed, which is not just a smoke pump.
Source: Ambito
