MNI US Macro Weekly: Here Comes The Hard Part

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• Tariff-driven volatility in policy, macro and markets continued this week, punctuated by President Trump’s surprise announcement of a 90-day pause on the reciprocal tariffs he announced on April 2, imposing a flat rate of 10% on most partners while simultaneously hiking tariffs on China to 145%.
• The data in the week was something of a sideshow in comparison, but if anything it showed that prior to the tariff escalation, the economy was on track for something resembling a “soft landing”.
• March's main CPI aggregates all surprised lower, with a notable below-expected supercore the lowest since Mar 2021, and producer prices likewise coming in soft.
• And while Q1 GDP is still tracking to be weak (negative, per Atlanta Fed GDPNow), “hard” data continue to defy recessionary fears, including the latest weekly jobless claims.
• But as March turns into April, these data points are becoming stale as we could see a sharp shift in both the hard and the soft data. The UMichigan April survey of consumers was stark in this regard, showing the weakest sentiment and highest inflation expectations in 4 decades.
• Fed officials suggested that upside risks to inflation and downside risks to growth had increased versus their pre-tariff announcement assessments, arguing for a patient approach on rate cuts.
• The market reaction to recent events and data has been notable: for the week, the S&P 500 rebounded sharply, long-end Treasury yields soared (10Y Tsys by the most in any week since 2001), and the dollar fell sharply. The implication is that foreign investors are beginning to shun US assets given tariff-related uncertainty, adding further complexity to the macro outlook.
• Looking ahead to next week, March retail sales (Wednesday) is the key data release: it’s expected to show a large sequential acceleration, with growth in the key Control Group reading remaining strong – but how much of this reflects tariff front-running will be a key question.
• It's doubtful Fed Chair Powell will shift his approach on monetary policy in an appearance next week versus his April 4 appearance when he said "it feels like we don't need to be in a hurry" to cut rates, but there will be attention paid to whether his tone reflects those of other Fed officials who have sounded increasingly cautious about the upside risks to inflation and downside risks to growth.