New duties could drive up inflation, sway Fed rate outlook
Investors are bracing for a looming hit to U.S. corporate profits and pressure on inflation if President Donald Trump makes good on his tariff threats, with markets seen as not fully factoring in risks from higher levies on foreign imports.
Harmon said he expects some level of tariffs to be implemented with the market reaction dependent on the extent of the duties. Barclays strategists estimate that the tariffs could lead to a 2.8% drag on S&P 500 company earnings, including the projected fallout from retaliatory measures from the targeted countries.
The potential to drive up consumer prices is a particularly sensitive area for investors, who are worried about a revival in inflation causing the Federal Reserve to stop cutting interest rates. The U.S. central bank this week paused its rate-cutting cycle, while Fed Chair Jerome Powell said officials were “waiting to see what policies are enacted” with the new president.
Colin Graham, head of multi-asset strategies at Robeco in London, said the firm was debating closing a position in long-duration Treasuries before the weekend.
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