Reinhart Week in Review by Madison Investments 05.16.2025

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TARIFFS

Following talks between the U.S. and China last weekend, the two sides significantly de-escalated the trade war with a 90-day reduction in U.S. tariffs on Chinese goods to 30% from 145% and a reduction to 10% for Chinese tariffs on U.S. goods. The Chinese also relaxed export controls. Equities, credit and the dollar rallied on the news.

Our Take: Markets are expressing optimism that the Trump administration is backing down from imposing tariffs at the levels announced on April 2. Tariffs will likely still be significantly higher than before, and it remains to be seen what impact this will have on inflation and growth.

 

INFLATION

April consumer prices rose 0.2% from the previous month on both a headline and core basis, which was less than the 0.3% rise that was expected. Year-over-year changes were 2.3% headline and 2.8% core. Producer prices declined as well. Treasuries rallied due to increased expectations for Fed easing.

Our Take: Markets were relieved that tariffs did not appear to reignite inflation or halt progress towards the Fed’s goal. It is unclear the extent to which tariffs have begun to affect consumer and producer prices.

 

RETAIL SALES

April retail sales rose 0.1% headline and 0.2% core. The headline number was better than expected and the core number was worse.

Our Take: Retail sales do not paint as bleak of a picture of U.S. consumer behavior as recent sentiment surveys but are at low levels. How much consumers have pulled back in response to uncertainty around trade policy will be crucial to determining how detrimental to growth tariffs will ultimately be.

 

MUNICIPALS

Moody’s Ratings downgraded Maryland’s General Obligation bonds and the state’s issuer rating from Aaa to Aa1. Maryland had carried Moody’s Aaa rating since 1973. Moody’s cited “economic and financial underperformance compared to Aaa-rated states, which is expected to continue given the state’s heightened vulnerability to shifting federal policies and employment, and its elevated fixed costs.” In addition, Moody’s indicated that Maryland’s reserves are lower than other Aaa-rated states.

Our Take: Maryland continues to struggle with rising costs, sensitivity to federal spending, and pension liabilities. Moody’s had placed a negative long-term outlook on Maryland last May, so a downgrade from Aaa to Aa1 should not come as a surprise. The downgrade may lead to increased borrowing costs for the state.  Maryland is expected to issue General Obligation bonds on June 11.

About Reinhart Fixed Income
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