Doing nothing in an uncertain world

Daily update

Investors await the Federal Reserve’s Wednesday policy decision. There is little expectation of a rate change. Preliminary April employment data showed reasonable strength although some areas of job growth (e.g. trucking) are clearly vulnerable as import volumes slow.
The Fed’s main problem is inflation uncertainty. There is little confidence in what future trade taxes will be. Overnight, US President Trump declared a 100% tax on imported movies—Mr Bean is seemingly a national security threat. There are reports of China rerouting trade to the US (China rerouted up to a third of its exports to partially avoid Trump’s first-term taxes).
The Fed would probably need to take into account retailers’ attempts to instigate a further round of profit-led inflation. There have been social media posts showing companies adding (implausibly) large tariff charges to bills. Tariffs apply at the point of import, so each 10% tariff should mean around a 4% consumer price increase. These reports might be scare tactics—it is possible that partisan bias has infiltrated social media.
Today’s data does not add much to anyone’s economic understanding, being mainly service sector sentiment polls. It is possible that survey comments will give a hint as to how corporate decisions are impacted by unpredictable policy.