By: Jeffrey Roach, PhD, Chief Economist, LPL Financial

One of the biggest fears for investors right now is the resurgence of inflation from adverse effects of Trump’s potential trade policy. Also worth mentioning, general market uncertainty is building, thanks to an over-eager Federal Reserve (Fed) who did a super-size jumbo cut in September, paving the way for markets to be disoriented about the Fed’s future path.

If the Fed is data dependent, the larger cut was likely unwarranted as the economy was growing above trend. Many investors thought the Fed should have adjusted rates by 0.25 percentage point instead of the half-point cut. And now, Fed Chair Jerome Powell said they are in no hurry to cut rates, causing markets to reprice expectations for 2025. In addition to the inherent risks of data dependency in an era of data revisions, investors are also working through the possibility that trade wars will incite an inflation resurgence.

The argument is tariffs bring about higher consumer prices, which could be true — but only if all other considerations are held constant. That assumes businesses pass along the cost, and supply chains are cemented down.

A tariff is a type of tax, so who will likely bear the brunt of that burden? Would it be the end consumer, the domestic importer, or the foreign producer? It’s likely a combination of all three but in this piece, we argue that the current macro landscape increases the chances that foreign firms will likely bear more — but obviously not all — of the cost.

Read the full commentary here: tariffs-and-inflation-weekly-market-commentary-11192024