The as yet unnoticed effect of the growing trade restrictions will be in the ultimate effect that these will have on consumer prices, and therefore on US interest rates. As Bloomberg notes today:
"U.S. consumers may be front-line casualties in a trade war. China's exports tend to be consumer goods, and the U.S. is near the limit where it can push up prices without voters noticing. Trump better be ready with an explanation before midterm elections..."
This is particularly so since the tariffs so far announced have not yet been fully implemented:
Even though there are plenty of people who are still - perhaps bravely - characterizing this as a "negotiating strategy", the price of getting it wrong will be high: higher prices and higher interest rates. The Fed has already lifted it's guidance to indicate a total of four rate increases this year... tariff pressures mean that this could be insufficient, even though the likely possibility of an inverted yield curve in the near future is suggests that rate pressures will ease. We hope so.
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