Trump, Powell & Rates: The Post-Liberation Day Edition

by Kevin Flanagan, Samuel Rines of WisdomTree, Inc., 4/10/25

This commentary was originally posted on April 7th

Key Takeaways

  • The unexpectedly steep tariffs announced on April 2 have injected fresh uncertainty into markets, but with implementation delayed until April 9, investors have a narrow window to reposition around ongoing trade negotiations.
  • Despite rising risks to growth posed by tariffs, the Federal Reserve is maintaining flexibility, with Chair Powell signaling potential rate cuts while emphasizing the economy’s underlying strength as a buffer.
  • Treasury yields have dropped sharply amid a flight to safety, yet markets have not priced in a full-blown economic downturn—creating both risk and opportunity depending on how trade and fiscal headlines evolve.

With the financial markets still wrestling with the tariff announcements from last week, one thing is still certain: uncertainty remains an integral part of the investment landscape. While we now know the actual tariff announcements, we don’t know what the final results will ultimately look like in the weeks and months ahead, and more importantly, their potential impacts on the economy and inflation, not to mention Federal Reserve policy decisions. Against this backdrop, there’s been a debate about whether recently released data, such as the March jobs report, represents stale, i.e., pre-tariffs, news. Yes, one can certainly make that case, but we would argue that how the economy/labor markets looked prior to Liberation Day is also important to see if things were sound enough to be able to absorb the potential negative effects that could be coming. One silver lining is that the March employment data revealed the labor market was still in relatively solid condition pre-tariffs.

Here's some key post-Liberation Day thoughts to keep in mind:

Trump

  • Liberation Day has come and gone, and the initial tariff settings were broadly higher than anticipated. There will be negotiations, and these are considered a “ceiling” by US Treasury Secretary Bessent.
  • Following April 2, the carveouts for autos and other critical components remain in force. The United States-Mexico-Canada Agreement1-compliant goods are not subject to the newly announced reciprocal tariffs. Negotiations with friendly nations including trade agreements remain ongoing.
  • Given the sheer size of the new levies, the next couple of days will be critical for understanding the potential outcomes. The tariffs do not go into effect until April 9, which leaves time for things to change dramatically between the announcement and the implementation.
  • Headlines, accurate or not, such as the 90-day extension for every country BUT China, will continue to come fast and furious. This is indicative of the type of policy volatility to expect in the coming weeks as negotiations play out.
  • Tariffs will dominate the news cycle. As the current tariffs are the “ceiling,” the coming announcements should largely be incrementally positive for those countries willing to come to the table and negotiate.
  • “America First” economic policies are seizing the attention of the markets, and that dynamic will continue as the tariff and trade announcements come across the wire. This is not going to abate in the near future and neither will the consequent volatility.