US tariffs become a structural risk, Fed to keep hike hopes 'alive'

Following a brief hiatus, the dreaded T-word is back on investors' lips. The headline-grabbing news out of the US overnight is that the White House has unveiled new tariffs of at least 10% on 60 countries.

In practice, this changes little as the previous emergency IEEPA tariffs have merely been replaced by near-identical levies under Section 301 authority instead.

The concern for markets, however, is the durability of these new tariffs, as the move to Section 301 removes the legal vulnerability that allowed the Supreme Court to strike down the previous round of import taxes.

With that legal escape hatch now closed, markets may need to start pricing tariffs as a structural drag on global growth rather than a transient risk to be negotiated away.

Focus now shifts unsurprisingly to next week’s FOMC announcement. Prior to the latest souring in US-Iran relations, our assumption was that the Fed would hold off from raising rates during the remainder of the year, before cutting them in 2027.

The recent jump in oil prices is quickly changing that stance. At any rate, markets are confident that the Fed will have no choice but to hike later in the year, as we very much expect policymakers to keep this possibility alive next week.