April 9, 2025

(THE FED WON’T RUSH TO SAVE THE MARKET)

April 9, 2025

Hello everyone

Tariffs will spur inflation, and then slow growth. It is very doubtful that the Fed will come to the rescue.

Morgan Stanley sees gross domestic product growth almost coming to a complete standstill and core inflation ending the year well above the central bank’s 2% target. The Fed, then, is very likely to sit on its hands and maintain its holding pattern on interest rates.

Last week, Fed Chair Jerome Powell said he expects policymakers to “wait for greater clarity” on trade policy ramifications before adjusting any further. The Fed currently targets its key overnight lending rate in a range between 4.25% and 4.5%, where it has been since December.

In a stagflation scenario of high inflation and slow growth, Morgan Stanley expects the Fed to lean toward controlling inflation rather than boosting growth. And that means, probably no rate cuts in 2025 and not one until March 2026. The investment bank then sees several cuts throughout next year. However, a recession could change that and bring forward rate cuts.

Below is a chart of the S&P 500. I show the Fib. Retracements. I have already expressed the view that the S&P500 could fall as far down as 4500, and I still see the possibility of that move happening. It may find a base between 4600 and 4500. I also show the support level with the horizontal line which marks the 4400 level. This support level should hold.

Trump’s steeper “reciprocal” tariffs are set to go into effect at midnight and are in addition to the 10% baseline tariff that took effect Saturday. A 104% tariff rate on Chinese imports is among those the U.S. will impose.

China has said that it will continue to take ‘resolute and forceful’ countermeasures as U.S. tariffs kick in. And China has wasted no time. Just this evening the country has slapped 84% tariffs on the U.S.

With Trump seeking to rebalance global trade, a byproduct of that will be capital outflows from the U.S.

U.S. exceptionalism is not shining now – financial markets are suffering.

QI CORNER

Jeffrey Gundlach is speaking here on CNBC about the market turmoil. Worth a listen.

https://youtu.be/SEcoQJNb8Hw?si=cIhZxm9jbBTVV-pa

Cheers

Jacquie

Legal Disclaimer

There is a very high degree of risk involved in trading. Past results are not indicative of future returns. MadHedgeFundTrader.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of MadHedgeFundTrader.com may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies.