EUR 8818.00 For Business Accounts Only

Policy: How Do The Tariffs Affect the Tax Cuts (and the Fed)?

Wall Street is appropriately laser focused on the implications of Trump’s tariffs, correctly seeing them as hurting nearly every sector by increasing inflation and lowering growth as well as creating uncertainty that dampens the confidence necessary to make long-term investments. We have little to add to that consensus. But there is a collateral issue that arose in the last week on which we have a somewhat contrarian view: how do the tariffs affect the tax cuts that Trump promised, and that Wall Street has largely factored in as a given? Most of what we heard suggests that the markets’ recent collapse increases the odds of the tax cut legislation passing. In this note we discuss why, even though we believe the odds of a tax cut are still high, the volatile economic and political dynamics suggest some reconsideration of the odds. Further, that dynamic can affect both the substance of the bill and in addition play into the difficult decisions ahead for the Fed.