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Week In Review


President Trump announced his intention to implement tariffs of up to 25% on steel imports and up to 10% on aluminum imports. Trump indicated that these measures would be implemented due to national security concerns, which would allow them to be put in place without legislation. The president followed up the announcement with a tweet stating that “trade wars are good, and easy to win.” Since this announcement the stock market has declined sharply and the dollar has weakened against the euro and the yen.

Our Take

Trade wars are not easy to win because all nations that engage in them end up losing some economic growth to a deadweight loss. Increased trade restrictions are generally stagflationary (slower growth and higher inflation). The specific tariffs announced would mostly impact imports from Brazil, Canada, Australia, South Korea, and Japan and would reduce the competitiveness of U.S. manufacturers whose products contain significant amounts of steel and aluminum.

Powell Testimony

This week, new Federal Reserve Chairman Jerome Powell delivered his first semiannual monetary policy testimony to Congress. During his remarks, the chairman stated that economic growth is solid and the labor market has been strong. He noted that there is no “strong evidence” of wage inflation at this point and more gains can come in the labor market without causing wage inflation. Overall inflation continues to run below the Fed’s 2% target rate. Powell reiterated the Fed’s commitment to gradual rate increases over the near term.

Our Take

Although Mr. Powell’s outlook for the economy has strengthened since December, the overall tone of his testimony was not particularly hawkish. There are no signs that the Fed will drastically depart from its very gradual pace of rate increases and balance sheet reduction, though Powell’s testimony was seen as affirming the Fed’s commitment to this path of monetary policy.


Kuroda made remarks in testimony to parliament that the BOJ will begin considering how to end its enormous monetary stimulus efforts in 2019. JGB yields rose, the yen strengthened, and the Nikkei fell in response to Kuroda’s remarks.

Our Take

Kuroda’s remarks are the first signal that the BOJ will follow the ECB and the Fed in a swing toward tighter monetary policy. A move in this direction by the BOJ would have all three of the largest central banks moving toward policy normalization, and this would put upward pressure on interest rates globally.

U.S. Economy

Fourth quarter GDP was revised down 0.1% to 2.5% due to less inventory build. Personal income and spending both rose in January, though incomes rose more, as the savings rate increased. Home prices continued to be up mid-single digits year-over-year. Durables orders and shipments came in below expectations.

Our Take

These readings indicate that the U.S. economy continues to move along at a moderate pace. Absent an external shock, the economy is most likely to continue this growth trajectory, employment is likely to remain strong, and inflation is likely to continue its slow firming.


Reuters reported that municipal bond issuance in February was $16.4 billion. This follows a $19.9 billion of municipal bond issuance in January. Both months are significantly lower than the December 2017 issuance of $58.1 billion.

Our Take

Issuers raced to market in December to beat potential tax law changes in 2018. In addition, uncertainty surrounding President Trump’s infrastructure proposal released in the middle of February may cause issuers to sit tight.