The interest rate decision was expected; a rate cut in July is just talk, but that doesn't mean Trump will turn the table. What has Powell done to make Trump start flipping tables? What will the impact of raising tariffs on the market be?
On the eve of tariffs, Trump continued to pressure Powell ten minutes early, asking, 'I heard there's going to be a rate cut in September?'
What Trump didn't expect was that Powell continued to show him no respect, still maintaining a taijiquan and ambiguous attitude, which aligns perfectly with my expectations of Powell and the centrists in my previous article—this is completely normal.
If the market is just like this, will everything end? After Powell announced no rate cut and that data needs to be observed, Trump began to flip tables. Since you are afraid of inflation and want to look at the data, I will show you the data well.
Just minutes after the announcement, Trump declared a 40% tariff on Brazil, adding to the previous 10%, bringing it to 50%. The impact of these tax increases on businesses is enormous.
Firstly, it concerns beverage companies, as Brazilian fruits are the raw materials. Next are coffee beans, and even beef and poultry, with 70% primarily exported to the United States. Such tariffs will inevitably have a huge impact on inflation for businesses and the production side. This could directly force Powell to back down from the data, though that alone is still not enough.
Except for Brazil, all tariff policies related to copper and goods priced below $800 have been adjusted. This will lead to increased spending on the business side within half a month, which will quickly impact inflation directly within a month.
While Trump turns the table against Powell, Canada has also made it clear that it is prepared for the trade negotiations ending on August 1 to be indefinitely postponed. Other countries are likely the same, as sanctions against Powell to force interest rate cuts may provoke Trump to stir up trouble directly, making the tariff situation quite dangerous.
Investment needs to be cautious. Tariffs may result in a difficult August, as there is still significant uncertainty in the current market in the short term. If Powell doesn't back down, then interest rate cuts will happen in October, and the inflation from tariffs will make the market particularly tough over these two months.
The probability of a rate cut in September is 49.6%, down from about 60% before the interest rate decision; the full-year rate cut pricing is 36 basis points, down from 44 basis points before the decision.