Today, Trump issued strong threats to his trade partners, creating a stir in global markets. The Federal Reserve’s response remains to be seen, as tomorrow the minutes from their last meeting will be released. These minutes are expected to provide clarity on the Fed’s perspective regarding the impact of tariffs on inflation and interest rate cuts. As tariff effects become more pronounced, their influence on inflation and interest rates is increasingly coming into focus.
April 2nd Turmoil
On April 2nd, Powell surprised markets by announcing unexpectedly high tariff rates, causing turmoil. To reverse the ensuing market decline, he later announced a three-month delay and introduced a global 10% tariff rate. As Trump’s three-month deadline approaches, tariff letters have been sent to many countries over the past two days.
So far, only Vietnam and the United Kingdom have signed trade agreements with the United States. China has agreed to a temporary deal, but further negotiations are needed. Meanwhile, Trump claims that the tariff letters he has been sending to countries over the last two days constitute an agreement.
Interestingly, the tariffs in the letters are nearly identical to those from April 2nd. Moreover, a general tax of 50% for copper and rates up to 200% for the pharmaceutical industry have been announced.
Despite the identical rates, BTC remains at $108,800, and the feared drop has not occurred. Rumors suggest a potential agreement with the EU, supported by Trump’s recent remarks warning countries of the remaining hours for an agreement.
Kyle commented on the current situation:
“Has Liberation Day 2.0 started? Trump is now sending ‘trade letters’ and announcing new tariffs: 25% for Japan and South Korea, up to 36% for Thailand and Bangladesh.
Furthermore, if opposed, these rates may increase. June’s customs revenues alone reached $27.3 billion. Tariffs are evolving from mere pressure tools to financing plans, and markets are already feeling it. This is not just tough talk, but a policy in formation. Pay close attention to the developments.”
Inflation and Fed Concerns
With tariff rates nearing 40%, what impact will they have on inflation? Although a direct 40% increase in inflation is unlikely, the rise in import prices will indirectly affect inflation. The Fed is concerned as inflation trends begin to reverse. This is evident from their decision to refrain from interest rate cuts this year and their public statements.
Does Trump agree with Powell? Unsurprisingly, no. He recently posted on social media about a study claiming zero inflation impact from tariffs, challenging the prevailing narrative.
“A new study by the Council of Economic Advisers shows tariffs have zero impact on inflation. In fact, import prices have decreased, as I always said. Fake news and so-called ‘experts’ got it wrong again. Show this study to Jerome Powell, who has been whining about non-existent inflation and refusing to act correctly. CUT INTEREST RATES, JEROME — NOW’S THE TIME!”
Tomorrow, the Fed minutes will be released, and we’ll begin hearing statements from at least three Fed members. Expect a busy day with potentially more tariff letters, news of EU agreements, the Fed minutes, and member statements.
