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Fed Likely to Stay Dovish Amid Manageable Tariff Impact: Stephen Innes

Fed Likely to Stay Dovish Amid Manageable Tariff Impact: Stephen Innes

Tariff Outlook and Its Inflationary Effects

Stephen Innes, Managing Partner at SPI Asset Management, notes that U.S. tariffs—if held within a range of 10–14%—are unlikely to trigger sustained inflation. Instead, they may cause a one-time price rise similar to a VAT hike, allowing the Federal Reserve to maintain its dovish stance. 0

Market Sentiment: The “Taco Trade”

Innes refers to the market’s “Taco trade” assumption—expectation that U.S. leadership tends to soften aggressive tariff plans. Citing recent trends, he predicts markets already pricing in a softer tariff outcome. 1

Corporate Margins and Tariff Absorption

The expert highlights uncertainty around who absorbs tariff costs—firms or exporters. Thus far, inflation remains subdued, suggesting businesses may be internally absorbing the expense. The Fed’s next moves hinge on how these costs are ultimately passed on. 2

Investment Implications: Gold as a Safe Haven

Innes favors gold over equities for the coming year or two. He points to strong Asian demand and central bank buying driven by de-dollarization trends—factors expected to support gold’s momentum. 3

Dovish Fed and Market Repercussions

Should tariffs remain modest, Innes expects the Fed to maintain current interest rates. A dovish posture could fuel equity rallies. However, lingering uncertainty means markets should tread cautiously. 4

Conclusion

With a manageable tariff regime likely, the Federal Reserve is poised to retain its accommodative policy. This provides breathing room for financial markets, though investors should monitor inflation transmission and corporate margins closely.

Source: The Economic Times