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Trump tariffs could reheat inflation if countries retaliate

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Neel Kashkari, President and CEO, Federal Reserve Bank of Minneapolis, speaks at the Milken Conference 2024 Global Conference Sessions at The Beverly Hilton in Beverly Hills, California, U.S., May 7, 2024. 

David Swanson | Reuters

Minneapolis Federal Reserve President Neel Kashkari said Sunday that President-elect Donald Trump‘s tariff proposals could worsen long-term inflation if global trade partners were to strike back.

One-time tariffs, Kashkari said on CBS’ “Face the Nation,” “shouldn’t have an effect long run on inflation.”

“The challenge becomes, if there’s a tit for tat and it’s one country imposing tariffs and then responses and it’s escalating. That’s where it becomes more concerning, and, frankly, a lot more uncertain,” Kashkari said.

During his first term, Trump essentially sparked a trade war with China when he imposed a series of import taxes on Chinese goods, which triggered the country to retaliate with its own set of tariffs on the U.S.

One of Trump’s primary economic proposals for his second term is to impose universal tariffs on all imports from all countries — with a specifically targeted 60% rate on China.

Economists, Wall Street analysts and industry leaders have repeatedly expressed concerns over the inflationary impact of that hardline trade approach, especially since inflation has just begun to cool from its pandemic-era peaks.

“We’ve made a lot of progress in bringing inflation down,” Kashkari said. “I mean, I don’t want to declare victory yet. We need to finish the job, but we’re on a good path right now.”

The Fed on Thursday passed its second consecutive interest rate cut, continuing its effort to loosen monetary policy as inflation approaches the central bank’s 2% target. Kashkari said he expects another cut to come in December, but that will depend on “what the data looks like” at that time.

As for Trump’s other major policy proposals like a sweeping immigrant deportation plan, Kashkari noted that the inflation threat is still unclear and so the Fed is still taking a “wait and see” approach before adjusting its policy.

Trump and his backers like billionaire Tesla CEO Elon Musk have also been outspoken about their desire to give the president input on Fed policy decisions. The central bank views its political independence as a core feature that allows it to shape monetary policy exclusively based on the health of the U.S. economy, not election incentives.

But Kashkari said he is not concerned about politics permeating Fed decisions.

“I’m confident that we will continue to focus on our economic jobs,” he said. “That’s what should be dictating what we’re doing and that is what’s dictating what we’re doing.”

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T. Rowe Price likes stock picking now

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One of the largest active ETF managers on leveraging fund tactics in new ways

It appears T. Rowe Price is benefitting from the record growth in actively managed exchange traded funds.

Tim Coyne, the firm’s head of ETFs, reports the firm is seeing significant growth in the area — listing the T. Rowe Price Capital Appreciation Equity ETF (TCAF) and T. Rowe Price U.S. Equity Research ETF (TSPA) as two established strategies that can satisfy investor demand.

“I think having that professionally managed portfolio is really beneficial to clients,” Coyne told CNBC’s “ETF Edge” this week. “We’re seeing just… greater volatility [and] uncertainty across both the equity and fixed income markets.

According to Coyne, the T. Rowe Price Capital Appreciation Equity ETF suits investors who are looking for long-term growth.

“The objective of the fund is to outperform the S&P 500 with lower volatility and greater tax efficiency,” he said. “It’s also a more concentrated portfolio, typically holding around a hundred names.”

As of April 24, the fund’s top holdings include Microsoft, Amazon, and Apple according to the T. Rowe Price website. But it’s not all Big Tech. The ETF also features smaller positions in companies like Becton Dickinson and Roper Technologies.

The T. Rowe Price Capital Appreciation Equity ETF is down about 5% so far this year while the S&P 500 is off about 7% However, the ETF is up close to 8% over the past year — roughly identical to the S&P 500’s performance.

Coyne notes the T. Rowe Price U.S. Equity Research ETF follows a similar strategy, but with a heavier weighting in top tech stocks.

“This is more of a large-cap growth product [T Rowe Price U.S. Equity Research ETF],” he said. “There are components of characteristics of both passive and active here. This fund is actually managed by our North American directors of research. So again, strong fundamental research is going into the stock selection.”

Both the T. Rowe Price U.S. Equity Research ETF and S&P 500 are down around 7% since the beginning of the year. Meanwhile, the fund is up almost 9% over the past year. That’s less than one percent better than the S&P 500’s performance.

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T. Rowe Price U.S. Equity Research ETF vs. S&P 500

‘Some form of bear market’

Strategas Securities’ Todd Sohn thinks investment demand for active managers will continue to be strong.

“This is the type of the environment where it [active management] can actually shine,” the firm’s senior ETF and technical strategist said. “We are in some form of bear market. This is where the active manager really can come into hand and offer their solution they are doing right.”

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