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The implementation of sweeping tariffs on March 4—25% on Canadian and Mexican goods, 20% on Chinese imports—sent shockwaves through Treasury markets that belied the relatively modest weekly changes. While the 10-year yield ended the week up just 9 basis points at 4.30%, intraday swings exceeded 30bp as traders wrestled with competing narratives of growth destruction versus embedded inflation. The curve's bear steepening dynamic reflected growing consensus that tariffs represent a stagflationary impulse the Fed cannot easily counter, with long-end yields bearing the brunt of inflation risk premium repricing.

Credit Pulse

Credit markets flashed warning signals even as spreads remained at historically tight levels, with high yield widening 6bp to 300bp while maintaining its position at just the 13th percentile of its 5-year range. The disconnect between still-compressed spreads and surging volatility—VIX jumped to 23.37, its 77th percentile—suggests credit investors remain dangerously complacent about tariff impacts on corporate profitability. Reports indicated high yield spreads briefly touched 400bp during Tuesday's panic before compression buyers emerged, viewing the selloff as premature given still-solid fundamentals.

Federal Reserve Policy Outlook

The Federal Reserve entered its pre-FOMC blackout period on March 8 at precisely the wrong moment, leaving markets without guidance as tariff implementation roiled financial conditions. The central bank faces an impossible trinity: fighting inflation that tariffs will accelerate, supporting growth that trade wars will impair, and maintaining credibility while fiscal policy actively undermines price stability. Market pricing for the March 18-19 meeting shifted dramatically during the week, with probability of a rate hold through 2025 rising to 75% from 60% as traders recognized the Fed's paralysis.

Behind closed doors, Fed officials surely grapple with whether tariffs represent a one-time price level adjustment or the beginning of sustained inflation pressure. History suggests trade wars create rolling waves of retaliation and adjustment that embed inflation expectations, but premature tightening could amplify tariffs' negative growth impact. The Committee's updated economic projections on March 19 will likely show upward revisions to inflation forecasts and downward revisions to growth—the textbook definition of stagflation that monetary policy cannot easily address. Powell's press conference looms as potentially the most consequential since the inflation fight began.

Week Ahead: FOMC Decision Meets Tariff Aftermath

• Retail Sales (March 14): February data takes on heightened importance as first clean read on consumer behavior post-tariff announcement. Consensus expects -0.2% decline as pre-buying exhausted demand, but tariff front-running could create upside surprise.
• CPI Inflation (March 12): February CPI becomes critical marker for pre-tariff price pressures. Core expected at 0.3% monthly, but any upside surprise would cement hawkish Fed pivot given tariff acceleration ahead.
• FOMC Meeting (March 18-19): Most consequential Fed meeting in years as Committee must address tariff implications. Updated dot plot likely shows fewer 2025 cuts while Powell faces intense questioning on stagflation risks.
• Housing Starts (March 19): Mortgage rates above 7% and construction cost surge from steel/lumber tariffs create perfect storm for housing. Permits data will reveal if builders are retrenching.
• Michigan Sentiment (March 15): Early read on consumer confidence post-tariff implementation. Inflation expectations component critical given visible price increases across retail channels.

US Economic Positioning and Global Context

America's turn toward economic nationalism via tariffs creates profound dislocations in the post-war economic order, with implications extending far beyond near-term market volatility. The synchronous easing by major central banks—ECB's cut to 2.5%, China's comprehensive stimulus package—reflects recognition that US trade policy represents a permanent shock requiring sustained monetary offset. Yet this policy divergence creates its own instabilities, with massive capital flows toward US assets even as American policy grows increasingly erratic.

Dollar hegemony faces first real test: The great irony of "America First" trade policy is its potential to undermine the very dollar supremacy it claims to defend. This week's Treasury International Capital data showing $254.3 billion in March inflows demonstrates continued foreign appetite for US assets, but conversations in Beijing, Brussels, and beyond increasingly focus on reducing dollar dependence. The combination of weaponized trade policy, fiscal profligacy approaching 7% of GDP, and political volatility creates conditions where dollar alternatives gain momentum. For fixed income investors, this means reassessing long-held assumptions about Treasury market depth, foreign demand reliability, and currency stability. The bear steepening in the curve this week may represent early recognition that term premium must rise to compensate for policy uncertainty that tariffs exemplify. Credit markets' failure to adequately price corporate risks suggests the repricing process has only just begun.