Money Advice

Tariffs, trade wars, and bears; oh my!

Posted by The Simply Money Advisors Team on Mar 5, 2018 1:48:36 PM

President Trump's announcement of steel and aluminum tariffs (taxes), as well as comments from Federal Reserve Chair Jerome Powell, caused stock market turbulence to pick up last week.

President Trump is expected to sign the formal order of a 25% tariff on imported steel and a 10% tariff on imported aluminum this week. While these tariffs will likely not have a significant - if any - impact on U.S. economic growth, the real risk is that of retaliation by other countries, resulting in what’s called a “trade war.” 

This could happen if other countries or regions decide to impose tariffs on U.S. goods because they believe they are protecting their own economies. The risk of an all-out trade war is still low but bears watching.

Federal Reserve Chair Powell testified before Congress on Tuesday and Thursday. On Tuesday, Chair Powell stated his economic outlook has improved since the end of last year, and markets viewed his comments as meaning four short-term interest rate increases in 2018 were now possible.

However, on Thursday, Powell tried to walk back the market's interpretation by saying, "There is no evidence the economy is currently overheating."

Simply Money Advisors believes that the Federal Reserve (Fed), our nation’s central bank, is likely to raise short-term interest rates three times in 2018.

This week, Wall Street will be closely watching the February jobs report due out Friday, March 9, because it could give some clues as to how many times the Fed might hike rates this year.

Economists expect that 205,000 jobs were added last month, the unemployment rate dropped to 4.0% from 4.1%, and wages were 2.8% higher over the past year.

The Simply Money Point 

Despite the current uncertainty, Simply Money Advisors expects the U.S. economy to grow around 2.5% to 3.0% in 2018.

This growth combined with corporate tax reform, a weaker dollar, and higher oil prices should help lift corporate profits about 15% in 2018. Higher earnings have historically resulted in rising stock prices, and this is good for the investment part of your personalized financial plan.

Topics: Economy


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