President Trump Implements Auto Tariffs

Yields climbs while equities fall on tariff fears. Treasury yields climbed 1-4 bps across a steepening curve today, pushing the spread between 2-year (4.02%) and 10-year (4.35%) yields to 33 bps. Concerns about tariff-driven inflationary pressures and stronger than expected durable goods orders (+0.9% in February vs. -1.0% est.) contributed to the rise in yields, while GDP and PCE could provide additional volatility tomorrow. Meanwhile, equities plummeted, with the NASDAQ down -2.04% while the S&P 500 declined -1.12%. Several automaker stocks declined after-hours following President Trump’s announcement about incoming auto levies.

Fed President Musalem is concerned about tariffs. Just a few days after Fed President Bostic said he is concerned about tariff-driven inflationary pressures, St. Louis Fed President Musalem offered similar comments. Musalem stated, “I would be wary of assuming that the impact of tariff increases on inflation will be entirely temporary,” though he caveated that the effects could be short-lived. Furthermore, Musalem added that robust inflationary pressures and a resilient labor market could force the Fed to leave policy “modestly restrictive” for longer. Both Bostic and Musalem appear more concerned than Fed Chair Powell, who said at the recent FOMC meeting that his base case is for tariff-driven inflationary pressures to be “transitory.”

President Trump announces steep auto tariffs. Today, President Trump announced that a 25% tariff on all auto imports will take effect on April 2nd. The move comes following a ~1-month delay in auto tariff implementation that led many to speculate the measures may have been delayed further or abandoned altogether. The auto tariffs are expected to generate ~$100 billion of annual revenue for the U.S. per the White House, however observers are concerned that the policy may have negative impacts on U.S. automobile manufacturers. Observers are now looking towards next week’s expected announcement of broader tariffs against a variety of trading partners. Despite the auto tariffs moving ahead as planned, President Trump has implied that next week’s measures may be more “lenient” than originally planned.