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We got a pretty interesting set of comments on Tuesday evening from Donald Trump. He confirmed two very important things:

1. He’s not going to fire Powell.
2. He says the tariffs on China will be “come down substantially, but it won’t be zero."

This is all very good news, assuming it lasts more than 24 hours, of course. But as I outlined in my scenarios the other day, this is pretty much the endgame I see as being the most probable. I said:

“Tariffs with China get reduced, but probably remain in place to a far lesser degree….In this case, the effective tariff rate drops to 5-10% overall, and there is minor economic damage.”

This has gotta happen fast though. Businesses want certainty about what prices will look like. So, if the effective tariff rate is going to be 7.5%, then we need to get there. Yesterday. Otherwise, we’re just going to continue with this slowdown in business investment, and the multiplier effect is significant every single day.

All that said, something in the 5-10% range is still meaningful. And it’s still yet to be seen how much collateral damage has been done. I suspect the rest of the world is still going to hold a grudge about all of this. And I have no idea what the knock-on effect of that is.

Anyhow, I’d say this is mostly good news in that it takes the worst-case scenario off the table. But we still need to settle this up fast. Real fast. Because a recession is still a legitimate risk here, and a slowdown is virtually certain at this point. Waiting to get certainty on where this ends is going to determine whether that slowdown is significant or minor.

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