On My Mind: Markets getting wobbly?

The new US administration's early actions, particularly tariff threats and public expenditure cuts, have introduced significant uncertainty into the macroeconomic environment, impacting consumer confidence and spending. While there has been a decline in consumer confidence and a deceleration in spending, the administration's focus on deregulation and tax cuts is expected to eventually boost economic growth. However, the current emphasis on cost-cutting and personnel changes has delayed progress in these areas, which are crucial for enhancing growth while managing inflation.

Despite these challenges, economic activity remains resilient, with the labor market in good shape and CEO confidence showing optimism. The potential negative impact of tariffs on growth is a concern, but given the US's largely closed economy, it is not expected to be severe. Inflation pressures are likely to persist, with the Federal Reserve signaling caution regarding potential inflation risks from tariffs, suggesting the easing cycle may be nearing its end.

Bond yields are expected to remain elevated, with the 10-year US Treasury yield projected to be in the 4.75%-5% range by year-end, influenced by fiscal policy and deregulation progress. While noise and volatility are anticipated to remain high, the focus should be on advancements in tax reform and deregulation, as these are key to a robust growth outlook. Overall, while risks exist, the US economy is expected to grow above its potential this year, provided progress is made on these critical policy fronts.