Interview, Fireside Chat, Roundtable
Repricing risks post tariff truce
- Recession risk is projected to decrease relative to previous levels, though a renewed labor market shock or new economic event could trigger a more dangerous scenario; the potential damage from tariffs is expected to be capped, with 10% tariffs acting as a floor and effective rates likely landing between 12% and 13%.
- Inflation is forecast to rise somewhat due to tariffs, with a peak expected in late summer and a return to approximately 3% by the end of 2026, while growth is anticipated to be somewhat lower, with a baseline 1% forecast for the year.
- The Federal Reserve may cut rates in September or December if the unemployment rate exceeds 4.5% and the labor market slows, with a nomination process for a new chair anticipated to advance through the summer, potentially leading to a more dovish regime and a steeper yield curve extending into 2026.
- Equity markets are expected to remain choppy and narrow with risks on both sides, potentially struggling to maintain forward momentum if data weakens, while a steeper yield curve and currency weakness are viewed as factors that could support equity performance or act as a cushion.
- Market sentiment regarding U.S. assets and the dollar is shifting toward a weaker dollar trend that may continue over time, with investors likely to remain wary of U.S. asset overweight positions, though the shift in allocation is considered a slow-moving process.
- Fiscal concerns are expected to rise as recession risks fade, with deficit issues moving to the forefront alongside discussions of tax bills, while the likelihood of further deficit-cutting measures is viewed as lower than previously market expectations suggested.
- Fixed income dynamics may see the back end of the curve facing pressure, with bond markets potentially becoming a constraint on equity performance, while non-U.S. bond performance could outperform U.S. bonds during risk-off periods.
- Geopolitical factors including Ukraine, Russia, and Iran, along with fiscal policy and Fed nominations, are expected to drive market narrative, with Chinese tariff hikes beyond 30% posing a significant risk to market stability if they occur.