Tariff Escalation, Slowing Growth, and a Higher Risk Backdrop…
- Last Friday, in a 6–3 decision, the U.S. Supreme Court ruled that the Trump Administration had exceeded its authority in imposing certain tariffs on key trading partners. The decision drew immediate criticism from the president who responded swiftly. Citing the Trade Act of 1974, the Administration announced a new 15% global tariff on all goods entering the United States, effective immediately. The rapid policy shift injected renewed volatility into the financial markets as investors reassessed expectations for retaliatory actions, supply-chain disruptions, and margin pressure across import-dependent industries.
- The U.S. Bureau of Economic Analysis also released its advance estimate for fourth-quarter GDP which showed that the economy expanded at a 1.4% annualized rate in Q4 2025. This growth rate was well below the 2.5% consensus forecast and sharply slower than the third quarter’s 4.4% pace. If sustained, full-year growth of 2.2% would mark a step down from 2024’s 2.8% expansion and would be the slowest annual growth since 2022. The data reinforced a pattern of uneven growth, with momentum fading into year-end. This report occurred against a backdrop of tightening financial conditions and policy uncertainty – the economy could in fact be decelerating rather than reaccelerating.
- Last week’s Inflation data added further complexity to the economic picture. The Federal Reserve’s preferred measure, the PCE Index, showed headline inflation at 2.9% year over year and the core rate increasing at a 3.0% rate for December 2025. However, the monthly figures were firmer with core prices rising 0.4%, a pace that—if it persists—could stall further disinflation. While recent CPI readings have been closer to 2.4%, policymakers place greater weight on PCE. Combined with a fading AI-driven equity rally and emerging stress in private credit markets, the macro backdrop is shifting toward greater caution and capital discipline rather than momentum-driven risk taking.