This could be the biggest threat to the rally, strategist says

00:00 Michael

So last time I was on, we chatted about this a little bit, and I believe that the Fed is behind the curve, and this could be one of the biggest threats to the rally. So, two things, I think. One, I’m not sure tariffs are inflationary. Josh, auto tariffs of 25% have been in place since April 3rd. I can tell you this, auto prices are not going up. So I’m not bought into this idea that tariffs are automatically equal to inflation. If they’re a tax, they reduce consumption. That can’t be inflationary. The second thing is if the Fed is at four and a quarter, four and a half, and their preferred measure of inflation, which we get a new number on Friday, is at two and a half, they’re pretty restrictive. They could cut rates three or four times and still be 1% above the current rate of inflation. So I do think that the Fed will need to cut as this economy slows and the labor market worsens later in the year for this rally to continue.

01:47 Speaker A

On tariffs, Michael, what do you say to those folks who say, listen, um, you know, the pain is yet to come. It isn’t showing up in the data yet. You know, you mentioned autos, they’ll say, hey, listen, here’s what’s going on. People just went out and bought those cars ahead of the tariffs, but just you wait, they say, June, July, you’re going to see it.

02:22 Michael

I think these are the same folks that believed that tariffs were inflationary back in 2018. The Fed was right there with them, alongside them, and that wasn’t the result. Now, I get it, a lot’s changed between now and then, but you can’t describe tariffs as a tax and then tell me that they’re inflationary. Those two things do not go together. So I just feel like, again, they ignore some of the offsets, some of the other things that are happening. The economy’s cooling, I think the labor market will weaken, oil prices are right back down into the 60s. Consumer confidence numbers, some of those soft data numbers, are starting to show some challenges. So I think the fear of inflation is likely greater than the actual result, and for that I think that was true in 2018, and I think it may be true again here in 2025.