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Investing.com -- According to Macquarie, Federal Reserve Chair Jerome Powell “would be cutting rates” if not for tariffs and escalating trade tensions.
The firm stated, in its latest Market Pulse, that “the new ‘deal’ aside, the US and China are disengaging, and this remains the defining aspect of the deglobalization that will define the next few years.”
Macquarie argued that “inflation retreated because underlying notional demand has weakened,” and said it leans “toward the view that Jay Powell will sound more ‘dovish’ next week than he did in May.”
Despite this, tariffs remain a headwind, said the firm. “The US is keeping its baseline reciprocal tariff at 10%... and its section 232 tariffs on autos, auto parts, steel & aluminum tariffs (now at 50%),” Macquarie noted.
The analysts said the latest U.S.-China agreement “wasn’t so much a ‘peace’ as it was a ‘ceasefire’,” adding that “the US and China will continue to disengage from one another slowly.”
They expect a “slow separation of the world into two trade, technology, and financial blocs, one US-led and one China-led.”
Macquarie also warned the trade conflict could damage the dollar. “That wouldn’t be good for the USD… the potential loss of US deficit financing from China and its associated countries would also be detrimental.”
“Stocks are further lower today – and the USD is suffering again – perhaps because of reports that US President Donald Trump will send ‘warning letters’ to some US trading partners ahead of a July 9 deadline,” Macquarie said, highlighting the growing policy uncertainty.
Despite signs of disinflation, Macquarie reiterated, “Tariffs do matter, or will matter.”