Bloomberg Economics analysts sound the alarm on a potential inflation storm brewing from two key risks:
1. *Tariff Time Bomb*: Trump-era tariff suspensions are set to expire, which could revive reciprocal tariffs on over $300 billion worth of goods and disrupt global trade flows.
2. *Middle East Oil Shock*: Escalating conflicts in the region could drive oil prices above $130 per barrel, adding 0.4% to US CPI for every $10 price surge.
*Projected Impacts:*
- CPI could reach 4% by August, up from the current 3.3%.
- The Federal Reserve might delay rate cuts until December or 2025.
- Consumers could face a spending squeeze from rising energy and tariff costs.
*Market Implications:*
- Energy stocks are rallying preemptively.
- Treasury yields are creeping higher.
- Markets now price in only 1.25 rate cuts in 2024.
*The Challenge Ahead:* Policymakers face a tough balancing act: containing inflation, avoiding recession, and navigating election-year politics. With new tariffs proposed and limited oil reserve options, markets are bracing for increased volatility.
