Daily Market Color March 27, 2025Tariffs, GDP Headline Ahead of Inflation Data Tomorrow Tariffs in focus again, but rates close nearly flat. Rates markets were relatively quiet today despite the enactment of 25% auto tariffs in the US, President Trump’s threat of further levies against the EU and Canada, and an array of economic data. Yields closed within 3 bps of opening levels across the curve, with the 2-year yield (3.99%) down 3 bps while 10-30-year yields rose 1-2 bps. Equities fell slightly on the tariff concerns, with the S&P 500, DJIA, and NASDAQ down 0.33% – 0.53%. Markets now have attention on tomorrow’s PCE slate for more clues about the Fed’s rate cut timeline. Latest GDP figures revised upward, but road ahead remains uncertain. The Bureau of Economic Analysis upwardly revised 4Q24 GDP growth in their third estimate released today, largely driven by a downward revision to imports, which weigh on GDP. The latest figures showed GDP grew by 2.4% on an annualized basis, slightly higher than expectations of no-change from the 2.3% prior estimate. While last quarter’s results were strong, growth declined 0.7% from the prior quarter, and policy uncertainty, along with weak consumer sentiment, is raising doubts about 2025 U.S. economic growth. As of yesterday, the Atlanta Federal Reserve expects GDP to contract by 1.8% in 1Q25. PCE headlines tomorrow’s slate. All eyes are on the upcoming personal consumption expenditures print, especially amid speculation that trade wars will cause heightened price pressures. Chair Powell acknowledged that tariffs will likely drive inflationary pressures, though he expects the impact to be temporary, while other Fed officials have warned that they are prepared to keep rates higher for longer. Core YoY PCE is expected to have accelerated by 0.1% in February to 2.7%, but all other measures are forecast to remain flat from January. Core and headline MoM PCE are expected to be 0.3% while headline YoY is expected to be 2.5%.