The tariff crisis is not existential

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Rola Khaleda, FT editor, chooses her favorite stories in this weekly newsletter.

Good morning. On Friday morning, Michigan University surveyed consumer morale of ages, party affiliations and income levels. On Friday evening, the Trump administration fell on customs duties Smartphones. In a country in urgent need of distraction, it is better not to impose taxes on distraction machines. Our correspondent email: [email protected] and [email protected].

Deep breath, everyone

Market crises are chaotic and complex. But last week’s disorder, with a slight loss of sincerity, can be summarized in three standard plans. Long treasury bonds have been sold so much, driving returns:

The dollar fell hard:

The fluctuation of implicit stocks has risen to the highest level in five years:

It is a mixture of these three that made last week very afraid. When the fluctuation is high, one expects the cabinet revenue to decrease as investors seek the integrity of the American sovereign debt. This did not happen. When we see the rise in returns, we expect the dollar to rise, with the expansion of international teams. This did not happen, too.

The image is simple: The Trump administration’s economic policy process was not unexpected and unqualified in a moment as it means high deficit and continuous inflation concerns that there is no room for amateurs. The returns are likely to remain volatile. International investors respond to this fact by demanding a higher boost to possessing treasury bonds. The treasury sold the dollar. All of this was amplified by the unlike high hedge boxes that are used to use that are no longer eradicated in a high fluctuation environment.

This seems very important, because the reliability of the dollar and the treasury is the basis of almost every global market. If things do not improve soon, then who knows what may happen.

It’s time to go back to go back. Five things that must be taken into account:

• Do not read much in the market at the point of reflection. The managers of all kinds rearrange their possessions in a great impulsion. This causes dislocation, some will be temporary. Day, week and month from now, things will look different. It is too early to declare that the dollar’s ​​superiority ends, and that the treasury will not be challenged again on the risks, or that the shares that the United States outperforms are something of the past.

• The weakening of the dollar and the rise in returns are not extremists. As the above plans appear, the dollar returned to its level before the presidential elections, and is running February. The movements were frighteningly fast, but they did not disappear scary.

• When the market raises the bet, Trump folds. Trump has now retreated to market pressure twice within a few days, first on the “mutual” definitions of everyone except China and then on Chinese electronics. This may not reduce the policy risk bonus on American assets. The inability to predict remains when policies are retracted For. But it will reduce the short -term economic damage.

• At a high level, this step in the returns is logical. The definitions increase the risk of inflation and the American financial situation in the air. Also, Lee James IGHOV, the chief American economist at BNP Paribas, indicated that if Trump achieves his goal of decreasing the trade deficit, this may also lead to raising returns as well. Commercial deficit and capital flows should match. If the first falls, then the latter will also, and this most likely means less request than the cabinet and higher returns.

• The economy is strong. The United States added 228,000 jobs last month. Inflation falls. The profits were healthy. Yes, we are sailing in immovable water. But the ship is sound.

Good luck this week.

Lessons from the 1973 oil crisis

Federal Reserve in the hot seat. He expects something close To the recession from Trump’s tariff. If these expectations are achieved, the bank will have to choose between its employment delegations and price stability. At the same time, the Treasury market is striving, and there are speculations that the Federal Reserve must intervene, and the bank has indicated that it is ready Do that. In the background, the US financial situation in the air: Republicans are compatible with tax cuts, but not Spending.

All these rhymes are a little bit with the last time the Federal Reserve deal with the recession: the 1973 oil crisis.

The standard account is run as follows. Arthur Burns, the Federal Reserve Chair from 1970 to 1978, did not do enough to restrict inflation after a series of financial shocks in the early 1970s – the violations of the Vietnam War, the wage controls in Nixon, and a change in the global currency system. It was not firm enough when the oil crisis was struck in 1973, which led to severe recession. Paul Volker, his caliph, pushed the roof rates, causing stagnation, and crushing inflation so badly that he did not return for half a century. It has been confirmed since then.

Burns gets Unreasonable rap music – Volker reduced the rate of federal reserve funds when the economy he was also kept, and Burns had to deal with the global transformations of the macroeconomic economy in which it was difficult to move. But the lesson remains. Leaving inflation works rampantly, and allowing for long -term inflation expectations, more toxic to grow from collapse for one time. Central bankers “look at” the shock of inflation in their danger, and confront us.

Powell – and most other central banks – sought to simulate Volker and focus on prices. After a harmful delay, they did not look during the increase in inflation for the year 2022. Modern dataPowell hit questions about the recession and was unprecedented in inflation, especially whether or not inflation expectations have been established or not. Through most of the measures that are still.

Our guess is that Powell will resist the pieces very early and risk an event similar to burns. However, in some aspects, it is more difficult than Burns. Oil shock is more clear than the definitions. At that time, the American economy and the United States were more dependent on oil, and expensive energy led directly to both the slower growth and the hottest inflation. It is difficult to predict the effect of definitions, partly because it was low for a long time. Fortunately, Powell began from a more benign inflationary environment. The main CPI was on Thursday 2.4 %Against 7.4 percent at the beginning of OPEC ban.

Investors and federal reserve lessons will see the forecasts of inflation closely. By the Federal Reserve He prefers The scale, which uses both bonds movements and data and scanning data, is still restricted. But there is a star mark next to these numbers. Soft data such as a Michigan poll indicates that long -term expectations may rise. If the unemployment should rise before inflation, the Federal Reserve may be able to reduce the wrong time specifically, and the similarities may deepen with 1973.

(Reich)

One good reading

Ibn al -Jasous.