US TSY FUTURES: BLOCK: Jun'25 2Y Buy

A new CBS survey has found that Americans are increasingly downbeat about the future of the US economy, with a growing number predicting a recession this year. 

• Politico notes on the survey: “Nearly two-thirds think the new tariffs will make the economy worse in the short term. But on a broader time horizon, there’s more disagreement: 42% said tariffs will make the economy worse in the long term, 34% said they’ll make it better and 23% said there was no impact or they were unsure... Americans are nearly equally divided on whether they support Trump’s trade goals, with 51% liking his goals and 49% disliking them. But on how he’s pursuing those goals, it’s more lopsided: 37% said they like his approach and 63% dislike it.”
• Bloomberg reports: “Morgan Stanley, BNP Paribas, RBC Capital Markets, Barclays Plc and UBS issued updated projections Thursday and Friday for gross domestic product ranging from -0.1% to 0.6% growth in 2025, and 0.5% to 1.5% growth in 2026. They forecast the unemployment rate would climb to almost 5% next year and penciled in higher inflation in the coming quarters.”
• Wall Street Journal reports on its quarterly survey of economists: “Since President Trump took office, economists have dramatically slashed estimates for growth while raising them for inflation and unemployment. The main reason... : tariffs.”

Figure 1: Expectations for the Economy Over the Next Year

Source: Semafor, CBS

• RES 4: 1.3305 High Oct 2 ‘24  
• RES 3: 1.3274 High Oct 3 ‘24  
• RES 2: 1.3207 High Apr 3 and the bull trigger
• RES 1: 1.3201 High Apr 14       
• PRICE: 1.3182 @ 15:47 BST Apr 14
• SUP 1: 1.2907/1.2709 20-day EMA / Low Apr 7 and a bear trigger  
• SUP 2: 1.2662 2.0% 10-dma envelope
• SUP 3: 1.2654 50.0% retracement of the Jan 13 - Apr 3 bull cycle
• SUP 4: 1.2559 Low Feb 28 

GBPUSD maintains a bullish tone and the pair is building on last week’s gains. The trend condition remains bullish and recent weakness appears to have been a correction. Moving average studies remain in a bull mode position that highlights a dominant uptrend. An extension higher would open key resistance and the bull trigger is 1.3207, the Apr 3 high. Key support has been defined at 1.2709, the Apr 7 low.   

Fed Gov Waller in a speech (link) titled "A Tale of Two Outlooks" lays out two different scenarios for rate cuts depending on how tariff policy develops. So while he's clearly maintaining his easing bias, as one of the most dovish FOMC members, he delineates the two easing scenarios as "good news/lower tariff" and "bad news/large tariff" rate cuts: 

• He cites estimates of an effective tariff rate of 25% today, vs under 3% at end-2024, "a sharp increase to a level that the United States has not experienced for at least a century". He posits two scenarios for the economy and Fed rates under these new tariff rates: "One possibility is that they will remain very high and be long-lasting, near the current average of 25 percent or more, as part of a committed effort by the Administration to engineer a fundamental shift in the U.S. economy toward producing more goods domestically and reducing trade deficits. The second scenario is that the suspensions are the beginning of a concerted effort to negotiate reductions in foreign barriers faced by U.S. exporters that will result in the removal of most of the announced import tariffs, which would reduce the average tariff rate to around 10 percent. This latter scenario had been my base case up until March 1."
• Under the large tariff scenario (25% tariffs remaining through at least 2027), core PCE could peak at 4-5% "in coming months" depending on passthrough to consumers, but moderate in 2026 so long as expectations remain anchored. He notes wryly given the return of the term "transitory" after the 2021-22 high inflation episode: "Yes, I am saying that I expect that elevated inflation would be temporary, and "temporary" is another word for "transitory.""
• Higher tariffs would entail larger and earlier cuts: "While I expect the inflationary effects of higher tariffs to be temporary, their effects on output and employment could be longer-lasting and an important factor in determining the appropriate stance of monetary policy. If the slowdown is significant and even threatens a recession, then I would expect to favor cutting the FOMC's policy rate sooner, and to a greater extent than I had previously thought. In my February speech, I referred to this as the world of "bad news" rate cuts. With a rapidly slowing economy, even if inflation is running well above 2 percent, I expect the risk of recession would outweigh the risk of escalating inflation, especially if the effects of tariffs in raising inflation are expected to be short lived."
• And besides weaker growth induced by tariffs, Waller sees lower productivity as investment weakens and is allocated "according to trade policy and not towards its most productive and profitable uses". His conclusion is that a  "fall in productivity would likely lower estimates of the neutral policy rate, making the current policy rate more restrictive than it is currently."
• In the smaller tariff scenario, the peak effect on inflation could be lower (around 3% annualized), with limited effects on economic activity - " I would support a limited monetary policy response". For the FOMC that means "room to adjust policy as progress on the underlying trend in inflation is revealed in price data. With the threat of a sharp slowdown or recession diminished, pressure to reduce rates based on falling demand would diminish also. That is, the policy response in this scenario could allow for more patience....In this case, "good news" rate cuts are very much on the table in the latter half of this year."