The Donald Trump administration has begun negotiations, suspending tariffs for '90 days', just like in the first term. KB Securities noted on the 15th that President Trump's actions have not changed compared to 2018 and that the decision of Jerome Powell, Chair of the Federal Reserve, is crucial.
According to Lee Eun-taek, a researcher at KB Securities, in 2018, President Trump also delayed tariffs for 90 days, and the KOSPI index rebounded by 13% over 2 to 3 months near the 200-day moving average. This was thanks to President Trump's positive remarks at the time, stating that 'negotiations went well' and 'would be completed soon.' Then, four months after the tariff suspension, President Trump suddenly declared 'a breakdown in negotiations.'
The researcher stated, 'President Trump is someone who believes that if you 'comfort first and then shock', you can get more.' They added, 'In any case, this is a time for negotiations, and if it is similar to the past, we can imagine some tariff reductions, agreements with several countries, and negotiations with China.'
This researcher evaluated that one factor that allowed the stock market to rise during Trump's first administration was the pause in tightening by Chair Powell. In October 2018, Powell caused a sharp decline in global stock markets by saying, 'We are far from neutral interest rates,' and insisted on raising rates at the following December Federal Open Market Committee (FOMC) meeting. It was only after a market crash that Powell declared an end to rate hikes.
This means that whether Powell implements easing policies again is important for the stock market. The researcher projects that in the short term, the deflationary impact of tariffs will be greater than the inflationary impact. For tariffs to lead to inflation, corporations must pass the tariff costs onto prices.
However, considering that ▲ it is still unclear what percentage (%) the tariffs will be confirmed at, ▲ corporations have stockpiled inventory, and ▲ President Trump has warned against raising prices, it is difficult for tariffs to immediately stimulate inflation.
The researcher stated, 'If inflation concerns had been greater, short-term government bond rates would have continued to rise.' They added, 'But now, they are back down.'
In the end, while the situation is favorable for the Federal Reserve to implement easing policies, the concern is whether Powell's tendency to emphasize physical indicators will change. Powell is scheduled to make a public speech on the 16th. The researcher noted, 'It is uncertain whether Powell, who adheres to data dependence, will act preemptively.'