Weekly economic commentary: Tariff turmoil

Summary

United States: Tariff turmoil

• The U.S. economy added 151K jobs in February accompanied by higher unemployment and lower labor force participation. Economic developments elsewhere reflected heightened uncertainty around trade policy, prompting a leap in imports, concerned industry comments and reports of higher input prices.

• Next week: JOLTS (Tue.), CPI (Wed.), Federal Budget (Wed.)

International: Simulating the economic impact of tariffs

• In an effort to proactively assess the economic impact of changes to U.S. and international trade policy, we modeled two new tariff scenarios. The more aggressive and contentious simulation—defined by aggressive tariff hikes and matching retaliation—leads to global recession in 2026 and sharp economic downturns in Canada and Mexico.

• Next week: Tariff Talk (Mon.-Fri.), Bank of Canada Rate Decision (Wed.), Brazil Inflation (Wed.)

Interest rate watch: What to make of the 10-year treasury yield?

• The 10-year Treasury yield has fallen sharply to start the year. The yield on the 10-year note began 2025 around 4.6%, and it got as high as 4.8% in mid-January. But over the past couple of months, a more dour economic outlook amid an escalating trade war have pushed yields down to roughly 4.26% as we went to print. Have longer-term yields fallen too far too fast?

Topic of the week: Don't set your expectations too high

• Tariffs pose upside risks to inflation, as the additional levies could be passed through to selling prices. Expectations for price growth in 2025 are recalibrating in response. Across several surveys and market-based measures, short-term inflation expectations have moved higher in recent months.

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