Digest | 30 March 2025
- Edward von der Schmidt
- Mar 31
- 4 min read
Updated: 5 days ago
A look at important themes on the horizon (March 31 - April 4).
The Week Ahead
CLARITY:
Whether rumored US tariffs or the uncertainty surrounding them are cause for greater concern, the so-called "Liberation Day" on Wednesday, April 2 will bring a degree of resolution to both. Levies targeting certain industries and commodities including autos, aluminum, steel, copper, lumber, pharmaceuticals, and oil have already been floated publicly but implementation details are lacking. "Reciprocal" tariffs remain undefined, though recent reports suggest that they may be larger and broader than anticipated. A flat tax of as much as 20% on all imports is apparently under consideration (WSJ). In President Trump's own words, "you'd start with all countries [...] essentially all of the countries that we're talking about" (Reuters).
Such a universal tariff would go well beyond prior expectations of proportional measures limited to those with the largest trade surpluses. Moreover, averting tariffs before they are announced appears unlikely - the administration intends to wield them in negotiations to compel behavior and concessions before any reprieve is offered. A pivotal assumption is that these tariffs will bring or force trading partners into the fold - and not elsewhere. The US Trade Representative (USTR) will deliver its policy review on Tuesday, April 1 (WSJ).
At the same time, Republican Senators will look to advance their own budget resolution ahead of a two-week recess beginning April 11. The Senate parliamentarian will determine whether a current policy baseline may be used, a method of budget scoring that will greatly influence the notional financing requirements of proposed tax cuts, and by extension, entitlement reductions and deficit growth. Senators are also exploring ways in which their preliminary plans may diverge from the House blueprint without jeopardizing prospects for passage through reconciliation, which would not require Democrats to participate (Politico).
CONFLICT:
Trade wars are not one-party affairs. Already, South Korea, China, and Japan have met for their first high-level economic talks since 2020 as the countries seek to navigate disruptive policy changes. While the 15-member Regional Comprehensive Economic Partnership (RCEP) seeks to enhance cooperation in Asia, Canada and the European Union have stated their intentions to respond to US tariffs in kind (if not in degree). An escalating reaction correspondence remains a key risk to global trade and its attendant effects on growth and inflation.
Kinetic conflict looms larger. South China Sea exercises continue to highlight tensions in the Indo-Pacific. In the Middle East, ceasefires have ended and Israeli strikes have resumed in Gaza and Lebanon. With bombing in Yemen underway, President Trump has threatened US military action against Iran if it does not come to terms regarding nuclear enrichment after Iranian officials rebuffed direct talks.
In Russia and Ukraine, a limited ceasefire has failed to take hold. President Trump has expressed frustration with both Russia - where President Putin suggested that Ukraine should be run by a custodial government in order to broker peace - and Ukraine - where President Zelenskiy appeared hesitant to endorse a modified minerals deal that would surrender the country's natural resource revenues for the foreseeable future. Trade barriers and "secondary" tariffs are also in play - potentially as much as 25-50% on countries importing Russian oil, according to the president. Trump reportedly plans to speak with Putin this week.
HARD DATA:
Against an unpredictable geopolitical backdrop, economic data in the US will offer something more tangible. Tuesday's Job Openings and Labor Turnover Survey (JOLTS) release will be accompanied by manufacturing PMIs (Purchasing Managers' Index) for March; services and composite PMIs will follow on Thursday. Monthly ADP payroll figures on Wednesday will bring a hiring gauge ahead of Friday's all-important employment situation report for March. Both the establishment and household survey periods roughly correspond to the second full week of the month (10-14), meaning that Friday's non-farm payrolls and unemployment readings will be the first to capture recent federal workforce dynamics.
See: "Comparing employment from the BLS household and payroll surveys"
THE FED:
All of these developments will be of primary interest to Federal Reserve officials, who have collectively voiced a preference to hold tight in a bid for further clarity and to keep policy restrictive given stalled progress on above-target inflation. Economic uncertainty and threats to growth and employment have not been dismissed, but tanking sentiment has not yet manifested in so-called hard data. This week's figures will address that concern and offer visibility as to whether a slowdown is already apparent or if the Fed has more cover to ride out the storm.
A recession may not compel the Fed to cut this Summer, but a marked deterioration in labor markets could. Still, the Fed may prefer to wait as long as possible to temper inflation expectations and go bigger if and when the central bank is sure that easing is called for. Regardless, there is no need to speculate as to the Fed's thinking. Governor Kugler will speak Wednesday ("Inflation Expectations and Monetary Policymaking"), Vice Chair Jefferson ("U.S. Economic Outlook and Central Bank Communications") and Governor Cook ("Economic Outlook") on Thursday, and Chair Powell himself ("Economic Outlook") on Friday.
Good luck,
Edward von der Schmidt