19.06.25 - US: more signs pointing to stagflation

Very insightful to follow Fed Chair Jerome Powell’s press conference last night. Beyond the official statement and published protocol, the Q&A session offered several notable takeaways.

For me, one of the most striking remarks: “Tariffs are going to end higher than forecasters see.”
Currently, market consensus assumes an average tariff rate of 13%. But reality may prove more severe. China is already facing 55% tariffs, the UK 10%, and there are still no additional trade deals on the table.

Powell was clear on inflationary risks:
“Everyone I know is forecasting a meaningful increase in inflation in the coming months due to tariffs because someone has to pay and some of it will fall on the end consumer.”
He elaborated that the pass-through effect from tariffs takes time:
“Goods being sold in stores today may have been imported months ago, before tariffs were imposed. We're only beginning to see the impact — and more will show up in the months ahead.”

Markets: US markets closed today, trading US Futures are negative - global equity markets are broadly lower - US dollar an Treasury yields moved higher - gold losing some ground - Cryptos are trading sideways

My view: The recent stream of some positive economic data may be misleading, as tariffs move through in a slower process the economy. There is delayed impact.

While Fed officials currently “don’t see signs” of a weakening US economy, Chairman Powell acknowledged that growth will inevitably slow. In other words: stagflation is no longer a distant tail risk, it’s becoming an increasingly plausible base case.

For a forward-looking Fed, the toxic mix of persistent inflation and decelerating growth presents a growing challenge. Yet markets may still be underestimating both the scale and the endurance of tariffs as a structural headwind.

With geopolitical tensions, particularly in the Middle East, dominating headlines, trade policy risks are drifting out of the spotlight. But the trade front remains unresolved, which adds to the Fed’s uncertainty and complicates the macro outlook.

Investors might be underestimating the impact and how high tariffs will ultimately go. No additional trade deals have been struck, and attention has clearly shifted away from trade politics. But this complacency could prove costly once tariffs re-enter the spotlight with full force.

This is why I maintain a portfolio allocation geared toward higher volatility and broader market shifts, with rising risks skewed to the downside.

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