Torsten Slok on US Economic Uncertainty, Consumer Worry, and Trade Policy

Economic Sentiment Divergence

• ⚠️ Soft data, including consumer and corporate sentiment, has significantly deteriorated since the last Federal Reserve meeting.
• 📉 Consumer confidence has dropped more for individuals earning over $100,000 compared to those earning less, indicating widespread worry about deteriorating business conditions.
• 📊 Corporate capital expenditure planning, as seen in FED Regional District surveys, is also showing signs of weakness.

The Fed's Communication Challenge

• 🎯 The Federal Reserve faces a challenge in communicating its stance, balancing strong hard data with weakening soft data.
• ❓ Uncertainty surrounding sentiment among households and firms is a key issue for the Fed and for the upcoming press conference.

Trade Policy and Tariffs

• ⚖️ The US has lower barriers to trade than most other countries, both in terms of actual tariffs and non-tariff restrictions.
• 📈 The current trade war is framed as an attempt to level the playing field with countries that have historically imposed more tariffs and non-tariff barriers.
• 🌐 The introduction of significant tariffs, including on Canada, Mexico, and China, has likely increased economic uncertainty.

Fiscal Policy and Investor Outlook

• 💰 Discussions around tax cuts and deregulation are seen as potential tailwinds to growth for the S&P 500 and the broader economy.
• 📉 Conversely, changes in government policy, such as cuts to programs like Medicaid, could negatively impact certain segments of the population, leading to winners and losers.
• 📊 Economists are working to quantify the net effect of these fiscal policies to understand their ultimate impact on the economy.