Stagflation, Tariffs, & "The Yips"

The Macro Institute's Weekly Economic Primer

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The Macro Institute
April 14, 2025

While policy announcements have been stealing the spotlight lately, this week’s data releases could start to show how those policies are actually playing out. On Tuesday, keep an eye on U.S. import prices, as we may begin to see the first signs of tariff impacts. Since the data is broken out by country, expect some interesting insights to surface. We’ll also get an early read on regional economic activity with April’s first PMIs: the NY Fed’s Empire Index on Tuesday and the Philly Fed Index on Thursday. These should offer clues on whether the recent stagflation trends are sticking around. All in all, it’s shaping up to be a revealing week.

The Macro Week In Review

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The Macro Week Ahead

⛳ Bond Market Getting "Yippy"

Golf seemed to be on the President’s mind last week as The Masters teed off at Augusta. In 1989, Scott Hoch famously “yipped” a 2-foot putt on the 10th hole and missed out on the green jacket. For golfers, the yips are no laughing matter. As a market strategist, the parabolic move in the U.S. 10-Year Treasury yield from 3.9% to over 4.5% was just as unsettling. Rising yields alongside falling equities challenges the traditional logic behind classic portfolio mixes. This leaves investors with few safe havens during this bout of volatility.

Last week will be remembered in financial markets for some time. The VIX Index neared crisis levels before President Trump walked back his reciprocal tariff rates for countries (outside of China) by granting a 90-day reprieve. However, a 10% tariff on all U.S. imports remains in place. Equities rallied sharply before losing some gains the following day. By Friday, China had retaliated with higher tariffs on U.S. exports (increasing from 84% to 125%) and announced it would no longer respond to further U.S. escalations.

Despite all the turmoil, the S&P 500 managed a ~5.5% gain for the week after Wednesday’s sharp rally. On the fixed income side, the broad bond ETF ($AGG) fell 2.5% last week, and the 20-Year bond ETF ($TLT) dropped 7%. Over the past three months the S&P 500 is down 8%, AGG is up 1%, and Gold has surged 20.3%.

📅 March Data Recap

With new tariffs taking effect in April, the full economic impact is still working its way through the data. The pre-existing tariff only slightly overlapped with March data:

  • 25% on steel & aluminum (effective March 12)

  • 25% on select Canadian goods (effective March 4)

  • 10-20% on Chinese goods (February & March)

  • 25% on certain Mexican goods (March 4)

Estimating the effects on consumer prices is complex. Some of the burden will be passed on to consumers as price hikes, while suppliers may absorb a portion through margin compression. The U.S., a major importer of tariffed raw materials, is seeing rising pressure in the retail sector. The Retail ETF ($XRT) is down 17% over the last three months compared to the S&P 500’s 8% decline.

As the supply chain adjusts, we expect continued volatility in the data. March’s CPI and PPI both came in below expectations at 2.4% and 2.7% year-over-year, respectively. Still, consumer inflation concerns are mounting with the University of Michigan’s preliminary survey showing 1-year inflation expectations at 6.7%, up 100 bps from the previous month.

🐰 April Regional PMIs

This week we’re watching two key data releases closely: Empire Manufacturing on Monday and the Philly Fed on Thursday. Both showed steep declines in the New Orders component in March while Prices Paid continued to rise. The combination of slowing growth and rising inflation signals stagflation. This is a particularly difficult setup for the Federal Reserve, as the data simultaneously points toward a potential need for both easing and tightening.

Retail sales will also be a major focus this week. While we expect consumer expectation weakness (seen in recent surveys) to start showing up in the data, the Johnson Redbook retail sales report for the week of April 4th (+7.2% Y/Y) suggests we’re not there just yet. The report also noted consumer pre-buying ahead of expected tariff price hikes, which explains the stronger than expected figures two weeks ago. 

🏘️ April Housing Outlook

The NAHB Housing Market Index for April is another key data point due this week. There's some hope for a short-term lift in housing activity, as the 30-year fixed mortgage rate has fallen from 7.4% in January to around 6.7% as of Friday. However, consumer sentiment around homebuying remains at 20-year lows. With mortgage rates still high by historical standards and consumers’ purchasing power under pressure from tariffs, we don’t anticipate a meaningful recovery in housing fundamentals in the near term.

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