On the appeals court ruling that a rump of the Trump administration tariffs are illegal – don’t lose sleep on interpretating what it means. The simple and straightforward way to view this is tariffs remain in place, and will remain in place going forward. It is true that the ruling could well make its way to the Supreme Court for a final look. But then again it might not. That’s up to the Supreme Court. But if it did, and the Supreme Court agreed with the lower court ruling, even then, continue to assume that the tariffs remain in place.
Why assume this? First, there is no plan B. The Trump administration is all in on macro management via tariffs. Second, President Trump has other avenues within which he can exert tariff control, based off balance of payments positions or national security issues. Third, and most important, Congress can grant additional tariff powers to the executive branch through new legislation, and this particular Congress is very likely to do what it needs to do to ensure continuation of existing tariff policy.
For all of these reasons, we are firmly of the opinion that the market movements on Tuesday (following the Labor Day holiday), had very little to do with tariff “uncertainty”. It had more to do with a general trend with long-dated bond yields, and an echo of the Lisa Cook affair that continues to remind us of the attempted prodding of Federal Reserve to cut rates. While it’s true that many agree that rates should indeed be cut (Chair Powell is now effectively one of them), the Lisa Cook push still feels a step too far, even if in a way with some justification.
That all being said, we remain of the opinion that path of least resistance is for the curve to continue to steepen from both ends.