Futures markets expect five rate cuts from Fed by year-end to combat tariffs

It feels almost trivial to be discussing the March payrolls report after the mayhem of the last two days, but it bears noting that the last labour market survey conducted before the 2nd of April shock was stronger than expected, with no hints of labour market damage, steady job creation and moderate wage gains.

The report contributed to the rebound in the dollar after its surprising sold-off in the wake of the tariff announcements - ordinarily, rising fears over global growth would be bullish for the safe-haven greenback.

Communications from Federal Reserve chair Powell that the inflationary impact of the tariffs will be larger than he expected, and would make it more difficult for the Fed to cut rates, also buoyed the dollar on Friday.

Futures markets now think that US recession fears will force the FOMC to cut rates on five occasions through year-end, yet we are very sceptical given the upside risks to inflation. This week's inflation report may show the first hints of impact from the tariff announcements earlier in the year.