TARIFFS
New U.S. tariffs went into effect this week with rates ranging from 10% to 50%. Some of the more impactful rates include India (25% with a potential hike to 50% if they do not stop buying Russian oil by August 27), Canada (35% on non-exempt goods), Brazil (50%) and the EU (15%). Additionally, the potential for 100% tariffs on semiconductor chips was announced as was the elimination of the $800 duty-free exemption.
Our Take: Tariffs lead to either higher prices, slower growth or both. The big questions are how high prices will go and how much growth will slow. We are about to find out, though the process will likely take some time.
FED SPEAK
It was a busy week for Fed Speak with several members reacting to the weaker-than-expected jobs report last week. San Francisco Fed President Mary Daly said the Fed will “likely need to adjust policy in the coming months,” reaffirming support for two cuts this year and leaving the door open to more if the labor market continues to soften. Minneapolis Fed President Neel Kashkari echoed that view, suggesting a cut may be appropriate “in the near term.” Governors Lisa Cook and Susan Collins also expressed concern about rising slack in the labor market and growing economic uncertainty. Meanwhile, Atlanta Fed President Raphael Bostic maintained his view that one cut is appropriate this year but warned that tariffs could create persistent upward pressure on inflation expectations.
Our Take: There was a noticeable shift in tone from Fed officials this week as several acknowledged growing signs of labor market weakness following the disappointing July jobs report. While most maintained a data-dependent stance, the conversation is increasingly tilting toward the need for policy adjustment.
MUNICIPALS
S&P warned this week that a new law in Chicago designed to increase pension benefits for some police and firefighters would further strain the city’s finances. The new law could increase Chicago’s pension liabilities by approximately 32%. Chicago’s police and fire pensions are currently only about 25% funded, much lower than the average 70% funding status of other large municipal pension funds.
Our Take: Cities fund pensions primarily through tax revenues. Those same tax revenues also fund other city services like public schools and transit systems. Chicago is struggling to pay all its bills and has faced back-to-back annual budget shortfalls of over $1 billion. Piling on generous pension benefits adds to the struggles and puts further pressure on Chicago’s creditworthiness.