On Wednesday, April 2, U.S. President Donald J. Trump introduced his much-anticipated tariff regime. All imports would be subject to a 10% tariff, while Trump would impose higher rates on nations that the administration views as “bad actors” on trade.

We wanted to share our perspective on the tariff news and the implications for fixed income investments.

Macro and Rates

• If the tariffs are fully implemented by Wednesday, April 9, as announced, we would expect a U.S. GDP growth rate of below 1% and core inflation of around 3.5% this year. This would represent a substantial deterioration in both GDP and inflation outcomes relative to general expectations. In our view, a recession (if defined as negative growth rates) would be a real possibility.
• We have expected the Federal Reserve to ease two to three times this year as growth (without any tariff news) is already slowing, something that should continue. In our view, the Fed will be balancing the tariffs’ impact on inflation and inflation expectations with any growth deterioration. Inflation expectations appear well anchored, which creates scope for the Fed to respond to the growth changes if needed. We believe that the market is priced for 100 basis points of easing over the next 12 months.
• We expect a similar response from other central banks like the European Central Bank and Bank of England that will balance the inflation impacts with the growth impacts.

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