Digest | 21 April 2025
- Edward von der Schmidt
- 4 hours ago
- 6 min read
Nascent concerns about central bank independence amid tariff-related risks weighed on US assets on Monday. Major equity indices declined by more than 2%, gold climbed to a record above $3400 per troy ounce, the dollar plumbed multi-year lows, and longer-term Treasury yields climbed materially. The administration's discontent with the absence of monetary easing signals prompted rule of law considerations and reinforced fears of diminished inflation-fighting credibility. Trade statecraft and security cooperation highlighted a dynamic geopolitical environment as US-Iran negotiations progressed over the weekend and Ukraine talks came back into focus. Prevailing economic uncertainty will presumably keep the Fed on hold through June and likely until September, inflation-permitting.
EDWARD VON DER SCHMIDT
Around the World
Trump-Powell:
Following Jerome Powell's appearance last Wednesday in which the Fed chair flagged risks of higher inflation and lower growth stemming from tariff policy, President Trump's ad hominem comments continued. In the Oval Office on Thursday, the president implied that he possessed the ability to fire Powell. On Friday, Kevin Hassett (director of the NEC) indicated that the White House was exploring the legality of such a course. (AP, Reuters, WSJ)
On Monday, President Trump attacked Powell on social media for not preemptively cutting interest rates:
"'Preemptive Cuts' in Interest Rates are being called for by many [...] there is virtually No Inflation. With these costs trending so nicely downward [...] there can almost be no inflation, but there can be SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW."
Trump's scapegoating invective proved counterproductive. Longer-term Treasury yields climbed as threats to the central bank's independence cast fresh doubt on the Fed's capacity to address above-target inflation in the face of political intervention.
The administration's posture has further piqued interest in any Supreme Court ruling revisiting Humphrey's Executor, which has restricted the president's ability to fire independent agency officials without cause, as well as the extent to which such a decision would apply to (or carve out) the Fed.
US-China:
In the wake of media reports (see Bloomberg) indicating that the US intended to leverage tariff negotiations to China's detriment, the Chinese Commerce Ministry warned trading partners against deals that harmed China's interests. (AP)
Though both the US and China have publicly expressed interest in dialogue under certain conditions, a lack of protocol may stymie diplomatic progress. (WSJ, Politico)
Chinese funds are pulling back from US private equity investments. (FT)
China's Foreign Ministry spokesperson Guo Jiakun addressed retaliatory sanctions on US officials and NGO leaders concerning matters related to Hong Kong. (AP)
Indo-Pacific:
Vice President J.D. Vance met with Indian officials including Prime Minister Narendra Modi in New Delhi. The US commented that the talks yielded "a road map for further discussions about our shared economic priorities". Modi's office "noted continued efforts toward enhancing cooperation in energy, defense, strategic technologies and other areas", adding that they "exchanged views on various regional and global issues of mutual interest, and called for dialogue and diplomacy as the way forward". (AP)
The US and India intend to sign a defense agreement later this year, when the latter will also host a meeting of the Quadrilateral Security Dialogue, aka the Quad (Australia, India, Japan, US). (AP)
The US and Philippines began their annual Balikatan (Tagalog: "shoulder-to-shoulder") joint military exercises, which are expected to run until May 9. (AP)
China and Indonesia agreed to further maritime security cooperation in the South China Sea. China has claimed rights to the Natuna Islands, which lie within Indonesia's territorial waters. (AP)
Iran:
Another productive round of mediation allowed US and Iranian negotiators to proceed to a "new phase" of nuclear talks back in Muscat. The Sultanate of Oman remarked: "This phase aims to reach a permanent and binding agreement that guarantees Iran's full renunciation of nuclear weapons, the complete lifting of sanctions and the safeguarding of its right to develop nuclear energy for peaceful purposes." (WSJ)
Iran's Foreign Minister Araghchi will visit China on Tuesday. (Reuters)
Ukraine:
Russian President Vladimir Putin suggested that he would be open to bilateral talks with Ukraine in what would be a first since Russia's 2022 invasion. (Reuters)
Discourse between the US, Ukraine, and European officials will continue in London. President Zelenskyy will push for an unconditional ceasefire - or at least an agreement to refrain from attacks on civilians. (Reuters)
US-Japan:
Japan's Cabinet Office released it Monthly Economic Report, in which it pointed out "uncertainty arising from the U.S. trade policies". The report added that "downturn risks of the Japanese economy due to the impact of the U.S. trade policies are increasing."
Last week's meetings between Japanese and US trade envoys brought reports of constructive dialogue but lacked firm progress or commitments. Japan's lead negotiator and Economic Revitalization Minister, Ryosei Akazawa, characterized US tariffs as "extremely regrettable". Finance Minister Katsunobu Kato will meet with Treasury Secretary Scott Bessent in Washington this week, where the G20 Finance Ministers and Central Bank Governors meeting and annual spring International Monetary Fund (IMF) gathering will be held. (NHK)
Tariff Relief:
President Trump met with major retailers on Monday to discuss the impact of broad-based tariffs. (Bloomberg)
The autoparts industry is also asking for help: the Specialty Equipment Market Association submitted a letter asking for a "transition period" to "re-shore" production and procurement, as well as "some form of economic relief". (AP)
On Sunday, President Trump outlined non-tariff barriers of concern in a social media post:
1. Currency Manipulation
2. VATs which act as tariffs and export subsidies
3. Dumping Below Cost
4. Export Subsidies and Other Govt. Subsidies
5. Protective Agricultural Standards (e.g., no genetically engineered corn in EU)
6. Protective Technical Standards (Japan's bowling ball test)
7. Counterfeiting, Piracy, and IP Theft (Over $1 trillion a year)
8. Transshipping to EVADE Tariffs!!!
Artificial Intelligence:
Huawei intends to ramp up domestic sales of a new chip technology in May, as US restrictions on processors have forced Chinese buyers to seek alternatives to Nvidia and others. (Reuters)
Monopoly:
The Justice Department sought to include Google's AI portfolio in consideration of antitrust measures in remedy hearings that began Monday. DoJ has called for Google to sell its Chrome browser software in order to address the company's illegal search monopoly. (AP, Reuters)
Privacy:
The 9th US Circuit Court of Appeals in San Francisco ruled that Shopify can be sued in California for its data collection practices. (Reuters)
Central Banks, Governments, & Data
Federal Reserve:
Appearing on CNBC, Chicago Fed President Austan Goolsbee did not dispute the economic impetus for easing but cautioned that more time would be needed to assess trade policy and its effects. He noted the "very important fact" that core long-term inflation expectations were not rising even as short-term price fears abound. Still, it is still too early to commit to a policy path:
"Everything's always on the table [...] but the Fed is supposed to be the steady hand here. What we need to do is look through - get the through line and where are things going to be let's call it after the 90-day pause and going through the year. Tariffs are one input, they're one shock that happens to the economy. But conditions change all the time."
Goolsbee's comments reflect an FOMC consensus that, at a minimum, the magnitude, scope, and permanence of 'reciprocal' tariffs should be clarified before a monetary policy shift would be appropriate. The Fed does not yet know if it will have to weigh growth and employment concerns against higher inflation or to what degree.
The Chicago Fed president is keeping an eye on whether strong (and welcome) productivity growth will continue to hold. He also pointed out that most US activity is domestically driven and that the impact of tariffs on the macroeconomy could very well be modest. We just do not know:
"We're getting announced retaliation. We're talking about revisiting the tariffs in 90 days. And we don't know what the impact on the supply chain is going to be. So I think we want to be a little more the steady hand and trying to figure out the through line before we're jumping to action."
President Goolsbee did end with a poignant reminder of the conditions prevailing prior to heightened trade policy uncertainty that would otherwise call for materially lower rates:
"Coming into April, we had unemployment right around 4%, which is pretty much stable, full employment, and inflation was in the mid 2s and coming down. If we can just get back on that path, I think that the long-run settling point for rates - you can see in the dot plot - is well below where we are today. So I think we are going to get through the noise and get back to that."
Time will tell.
...
The Fed is not averse to cutting. They simply do not want to begin easing until they know what tariff policy and responses will actually be in order to have a better grip on inflation risks. Unless there is a sharp deterioration that has yet to manifest in economic data, cutting before September still appears unlikely.
US - Leading Indicators:
The Conference Board's Leading Economic Index (LEI) fell more than expected in March, driven by falling consumer expectations, equity losses, and softer manufacturing orders. They also revised their 2025 GDP growth estimate to 1.6%.
Elaborating, "The slower projected growth rate reflects the impact of deepening trade wars, which may result in higher inflation, supply chain disruptions, less investing and spending, and a weaker labor market."