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Weekly Market Update

Trump’s Policy Threatens Inflation Balance

Goods inflation dropped below 0% in 2024, helping ease US inflation, while services inflation remained elevated. However, Trump's tariffs threaten to disrupt the fragile balance between goods and services, raising concerns over future inflation pressures.
5 min read
Senior Investment Strategist
Investment Strategy & Research Specialist
Investment Strategy and Research
Fixed Income Portfolio Specialist

Inflation played out as a tale of two sides in 2024. Services inflation remained sticky around 4% and continues to be above levels seen in the 2010s. Goods inflation however fell below 0%, acting as a disinflationary force in the total inflation equation. As a result, the U.S. was able to see some progress towards lower overall inflation.

Recent tariffs introduced by Donald Trump have threatened to disrupt the fragile inflationary equilibrium that's emerged between goods and services. Impacts from tariffs will have more of an impact on goods inflation, more so than services. With goods no longer acting as an anchor, investors are concerned that overall inflation could rise. All this matters as we try and determine the Fed’s reaction function to these policies.

Markets continue to react to all the moving pieces of the new administration. What’s interesting is that despite all the inflation anxiety, the market is currently pricing in more 2025 rate cuts than what was priced prior to Trump taking office on 20 January. Seemingly, growth concerns appear to be temporarily putting downward pressure on rates, overwhelming the upward pressure from inflation.

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