We also continue to miss key economic data as the government shutdown extends into its sixth week. Today, the Bureau of Labor Statistics would have released its October jobs report. Private data suggests continued softening in the labor market, but the lack of consistent data makes it difficult to infer where the Fed may be heading with interest rates in December.
Are Trump's Tariffs Legal?
The Supreme Court held oral arguments this week for the case regarding President Trump’s existing tariff policy. The case is specifically reviewing whether the administration’s use of tariffs under the International Emergency Economic Powers Act (IEEPA) is constitutional.Enacted in 1977, the president can invoke the IEEPA to deal with extraordinary foreign threats, and if the president declares a national emergency, he is granted certain powers to address the emergency.
The main question up for debate is whether tariffs are a component of these powers. The law, under section 1702, broadly states that the president can “regulate … importation”.
The court seemed skeptical of the argument that this would grant unilateral power to the president. Key questions were raised by the justices.
- Would this law, written as broadly as it is, violate the “major questions” doctrine, which implies that major questions of political or economic significance cannot be delegated from Congress to the executive branch without clear delegation?
- Does this law, if it grants the president unilateral ability to tariff, unconstitutionally delegate some of the power of the purse from Congress to the executive branch?
- If the tariffs are declared illegal, will the government need to refund payments that have already been collected?
It will be very interesting to see how the justices resolve this issue and at what speed they deliver a decision. If declared illegal, the administration will likely revert to the more clearly defined process that it used in the past during the first trade war with China. These measures will take a bit longer to enact, and the process is clunkier.
The important takeaway for investors is that although this is an important decision, it is unlikely to completely remove the tariff risk in the long term. We’ll be watching closely for a decision in the next few months and share our thoughts once it’s released.
Policy Turbulence Hasn't Upended US Treasuries
As we head into the weekend, we’re recommending a couple-minute read published in Forbes.com this week by Chris Gunster, the bond guru here at Fidelis. There have been many discussions around Treasury rates this year, and Chris’ thoughts do a great job of summarizing the major talking points.We’re sharing the first half of the article without charts below. Click here to jump straight to his full analysis. (To share his sense of humor with you, the Monty Python reference below inspired Chris’ introduction.)
In the spring, market participants warned that the US Treasury market was dead. Pundits, financial reports and analysts at the time were predicting a significant decline in global demand for US Treasuries due to the implementation of tariffs, an increasing budget deficit, a credit rating downgrade and the Trump administration’s “America first” policies.
Six months later, the Treasury market says, “I’m not dead!”
Why Investors Thought US Treasuries Would Sell Off
Since April, there have been a number of reasons why investors were concerned about bonds, specifically US Treasury bonds.#1: Liberation Day
The announcement of broad-sweeping tariffs on April 2nd initially spooked the financial markets. Equity markets dropped and risk measures in bond markets increased. The expectation was that tariffs would slow the US economy, increase inflation and force bond yields higher and corporate profits lower.
#2: Moody’s Downgrade
On May 16th, Moody’s Ratings cut the credit rating of US Treasury debt to AA+ from AAA. This was the last of the three major debt rating agencies to downgrade US Treasury debt below the highest rating of AAA. As I discussed in an article dissecting the downgrade, Canada, Germany, Switzerland, Norway and a handful of other countries now have a higher rating than the US.
#3: The One Big Beautiful Bill Act (OBBBA)
Signed into law on July 4th, the OBBBA is estimated to cost $3.4 trillion over the next 10 years, according to the Bipartisan Policy Center. This policy adds to the already increasing deficit, currently running at $1.78 trillion for 2025, and to future deficits, which will have to be financed through the increased issuance of US Treasuries. The amount of US Treasury debt outstanding is now at $29.7 trillion and growing.
#4: Trump Administration Policies
The Trump administration’s deglobalization policies could also be seen as inflationary. Trade protection, onshoring of less efficient manufacturing and selective retaliatory trade restrictions, in addition to tariffs, all threaten to increase consumer inflation.
Why US Treasuries Have Remained Strong
Despite these apprehensions, the Treasury market has been well behaved year-to-date. The most recent data show that demand for US Treasuries has remained strong throughout the year. Treasury yields across all maturity buckets are substantially lower compared to the beginning of the year...[CONTINUE READING HERE]
