MNI US Macro Weekly: Patient Fed, Not-So-Patient White House

Download Full Report Here

EXECUTIVE SUMMARY: 

• In a quieter few days for tariff policy developments by recent torrid standards, attention in this holiday-shortened week was on Fed reticence to ease policy despite apparent increasing risks to economic growth. And it wasn’t just markets paying attention to the Fed’s messaging.
• Fed Chair Powell’s assessment that the tariffs and their likely effects are "significantly larger than anticipated" was construed as a hawkish signal as he doesn't seem swayed by the subsequent April 9th 90-day tariff "pause", or market dislocations in the interim.
• Following up in Q&A: "I do think we'll be moving away from" the dual mandate goals “probably for the balance of this year. Or at least not making any progress, and then we'll resume that progress as we can."
• This contrasted with Fed Gov. Waller who earlier in the week offered another more clearly dovish take: a small tariff scenario would see "good news" rate cuts very much on the table in the latter half of this year vs sooner and to a greater extent under a large tariff scenario.
• But it seems that the more cautious members are holding sway, as NY Fed’s Williams, a noted dove, saw no need to adjust rates “anytime soon”.
• This caution brought an extraordinary series of attacks on Powell by President Trump, who said "If I ask [Powell] to, he'll be out of there … I don't think he's doing the job. He's … always too late. A little slow. And I'm not happy with him. I let him know it and if I want him out he'll be out of there real fast, believe me."
• The market took it largely in stride, though there was a hint of yield curve steepening and higher long-term inflation breakevens and term premia, a cautionary prospect for further challenges to Fed independence.
• In data, March retail sales largely met expectations, whilst core categories were more mixed but with very strong revisions. On the potential degree of tariff front-running pre-"Liberation Day" (Apr 2), we saw it in some areas, especially autos, but perhaps not as much as we might have expected in others.
• On the whole, Q1 data appeared solid enough, but as the Philly and NY Fed's April surveys suggested, recessionary conditions could be brewing.
• Flash PMIs (Wed) and preliminary durable goods (Thu) headline the week’s data in the week ahead but we think there should also be special mention for the Fed’s Beige Book.