TSX runs higher on rate cut expectations
Investing -- JPMorgan analysts said in a note Thursday that they expect the U.S. to see a sharp rise in inflation in the coming months following former President Donald Trump’s sweeping tariff announcement.
“We believe the inflationary effects would mostly be realized in the middle quarters of the year,” wrote the bank.
The firm estimated that the newly imposed trade barriers "could boost PCE prices by 1-1.5% this year."
The tariffs, which go into effect on April 5, include a "10% minimum tariff on all good imports" and significantly higher rates for key U.S. trade partners.
"For example, 20%-points on the EU, 24% on Japan, and 34% on China," JPMorgan wrote, adding that for China, "this would take the average tariff rate to 54%."
The firm calculated that these changes would raise the average effective tariff rate from what had been prior to today’s announcement, around 10%, to just over 23%.
Beyond inflation concerns, JPMorgan flagged potential economic risks, stating that "the resulting hit to purchasing power could take real disposable personal income growth in 2Q-3Q into negative territory."
The bank adds that it could also lead to a pullback in consumer spending, with the firm cautioning that "this impact alone could take the economy perilously close to slipping into recession."
While Trump suggested that tariff rates "could be negotiated down if other countries lower their trade barriers to US products," a White House official signaled that "other section 232 tariffs (e.g. chips, pharma, critical minerals) are still in the works, so the average effective rate could go even higher."
With headlines about retaliatory measures by US trading partners already coming out, JPMorgan expects further economic uncertainty.
The firm concluded that "the somewhat confusing nature of today’s news, coupled with uncertainty over how long these tariffs will remain in place, should make for an even less friendly environment for investment spending."