Macro Matters: Persistent 'Affordability Stress' and Trade Uncertainty Impact US Economy

Trade Policy and Economic Impact

• ⚠️ Persistent trade uncertainty and elevated tariffs imposed by the US are detrimental to business activity and investment.
• 📉 The increase in the US average tariff rate has hurt economic activity globally, with ongoing uncertainty and volatility around trade policy continuing to weigh on the economy.
• 🛒 Higher tariffs are being passed through to consumer prices, eroding consumer spending power.

Tariffs and Supreme Court Ruling

• ⚖️ The Supreme Court's delayed ruling on the legality of using emergency powers to impose tariffs creates uncertainty.
• 📊 A ruling against the administration could lower the US average tariff rate, potentially offsetting some economic drag, but other tariff options remain.

Inflation and Consumer Affordability

• 📈 Businesses are compressing margins to limit tariff pass-through, but ongoing pressures are expected to push US consumer price inflation towards 3% in the first half of 2026.
• 🏠 This persistent inflation will continue to create affordability stress for households, limiting their spending power.

US Economic Growth Pillars and Risks

• 🚀 While the US economy shows robust year-over-year growth around 2.5%, its foundation is narrow, relying on affluent consumers, AI investment, and asset price appreciation.
• 📉 Fragility in any of these pillars could lead to a slower US economy in the next 12-24 months.

Federal Reserve and Monetary Policy

• 🏦 The Fed faces a complicated landscape with political pressure and a difficult-to-read economic environment.
• 📉 Despite challenges, the Fed is expected to implement around 50 basis points of easing in 2026, with the first rate cut likely not before midyear.

Global Investor Diversification

• 🌍 Global investors, including central banks, are diversifying away from US dollar-denominated assets, favoring commodities like gold and silver as a hedge.
• 💲 This diversification does not signify a loss of the US dollar's reserve currency status.