April 6, 2025

QuickTakes

ECONOMIC WEEK:

April 7–11

While Trump's tariffs will likely dominate the headlines, the economic week ahead will also focus on the inflationary impact of US import duties. We expect March's CPI (Thu) and PPI (Fri) to confirm our concern that higher goods prices will lift headline inflation measures quickly, preventing an easing policy response from the Fed. In other words, the Fed Put is likely on hold this year even if tariffs and uncertainty depress real GDP growth significantly.

The data out this week are likely to add to Trump Tariff Turmoil (TTT) fears and keep stocks on the back foot. We are lowering our range for the 10-year Treasury bond yield to 3.75% to 4.25% (from 4.25% to 4.75%) for the rest of the year as a result of TTT (chart).

Consider the key data coming out this week:

(1) CPI. The Cleveland Fed's Inflation Nowcasting tracking model projects March's headline and core CPI rose 0.03% and 0.26% m/m, respectively. That would lower the y/y readings to 2.49% and 2.99% (chart). We think they could be higher. There are already signs that tariff frontrunning boosted producer prices earlier in the year. While the effects of tariffs may not show up in consumer prices until April or May, the rebound from bad weather in January and February likely contributed to boosting consumer prices last month.

While services prices are disinflating, that slow process is likely to come up against rapidly rising goods inflation (chart). One of the reasons we suggested the Fed shouldn't cut the federal funds rate (FFR) last year was that disinflation had benefitted from deflating goods prices. Now, that's over.

(2) PPI. Pre-tariff import prices from Asia mostly rose in February because of increased demand (chart). That likely continued in March as importers scrambled to get ahead of Trump's tariffs.

Higher import prices will likely feed through to CPI and PPI goods inflation quickly (chart).

(3) NFIB. Uncertainty is likely to be the theme of March's small business survey (Tue). We're expecting small business owners' optimism to deteriorate, along with fewer plans to expand. One thing we're watching closely is the number of job openings. The skilled worker shortage led a lot of small businesses to continue hiring new workers. If job openings and plans to increase employment fall, that would be a bad sign for the labor market (chart). Initial unemployment claims (Thu) could rise this month in that scenario.

QuickTakes Archive

Contact us by email or call 480-664-1333.

Copyright (c) Yardeni Research, Inc. Please read complete copyright and hedge clause.