Edmund Shing

What is the direction of US inflation? Rising or stable close to 2%? 

Trump’s policies are assumed by the financial markets to be inflationary given their emphasis on lower benchmark interest rates, faster real growth and the risk of over-heating domestic wage growth and the inflationary impact from higher import tariffs.

But, this may not be the case. Tariffs could be more of a negotiating tactic. Indeed, the application of any eventual tariffs may well be more gradual than the markets think. There may also be offsets to tariffs in the form of compensating behaviour from export and import firms, plus currency devaluation. This is clearly important for the future of the US Treasury bond market and by extension for US corporate bonds given historically tight credit spreads today.