UBS: Trade Chaos Fans Fed's Caution
SPDR S&P 500 ETF Trust (SPY) slips as UBS warns that tariff uncertainty will keep the Federal Reserve on the sidelines.
UBS Chief Economist Paul Donovan notes that a U.S. trade court invalidated roughly half of President Trump's emergency-power tariffs, lifting a significant tax burden but leaving uncertainty firmly in place.
Futures markets are pricing in two quarter-point Fed rate cuts this yearone in September and another by year-endafter the Fed's own minutes reaffirmed a wait-and-see stance amid policy ambiguity.
Donovan argues that while the court decision eases costs for consumers and companies, it doesn't reset to factory settingsthe ruling will be appealed, and future tariff moves or alternate legislation could reimpose trade taxes. That back-and-forth may prompt businesses to delay investment or hiring and hold off further price increases until the outlook clears.
Investors should care because persistent tariff risks can dampen growth, keep interest rates elevated for longer and weigh on market sentiment.
With the Fed's next policy meeting slated for June 1112, markets will be watching for any shift in guidance on the appeal process or fresh trade-related developments.
This article first appeared on GuruFocus.
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