Inflation cooled in March, but doesn't account for impending Trump tariffs, warn asset managers

March inflation figures came in softer-than-expected, but asset managers cautioned that the data does not take into account the impact of President Donald Trump’s recent volley of heavy tariffs on foreign imports.

Kay Haigh, global co-head of fixed income and liquidity solutions at Goldman Sachs Asset Management, said the March CPI data “feels backward-looking given the large changes to trade policy seen in recent days.”

Going forward, Haigh noted, the Federal Reserve is likely to “face a difficult trade-off as tariff-driven price increases start to feed through to the inflation data and activity remains soft.”

Haigh expects the Fed’s initial reaction to be cautious, but added that the risks remain that a sharper-than-expected slowdown in the economy could result in a resumption of the Fed’s easing cycle.

Skyler Weinand, chief investment officer at Regan Capital, said the Fed is now “stuck” as Trump’s “on and off tariff policy” is making it nearly impossible for the central bank to gauge inflation expectations, which is one of the main drivers of Fed policy decisions.

“Market and political instability, combined with relatively high inflation, sets us up for a volatile year in rates and stocks,” he noted.

The March CPI data “doesn't tell the market much about how the recent tariffs, albeit many of them on pause, are affecting consumer prices,” Weinand added. “The next two-to-three CPI reports over the coming months will take on greater importance.”

Regan Capital has $2.5 billion in AUM.

The Bureau of Labor Statistics reported on April 10 that the CPI rose an annualized 2.4% in March from a year ago, below the 2.8% figure recorded in February, and also below forecasts.

Economists were expecting a 2.6% annualized CPI figure for March, according to financial data firm FactSet Research Systems.

Excluding the volatile food and energy sectors, core CPI rose by an annualized 2.8% in March, below the 3.1% pace reported in the prior month, and also the smallest 12-month increase since March 2021.

The Fed has considered the inflation rate a key factor in its monetary policy decisions.

The Fed’s key short-term interest rate is currently in a range of between 4.25% to 4.5%, after the central bank chose to keep rates unchanged on March 19.

As of the morning of April 10, according to CME Group's FedWatch tool, shortly after release of the CPI data, market pricing of Fed fund futures indicated there is a 79.1% probability that the Fed will keep rates frozen when it issues its next monetary policy decision May 7, and a 20.9% probability it will cut rates by 25 basis points.

Dan Siluk, head of global short duration & liquidity and portfolio manager at Janus Henderson, said he is also “circumspect” about the current inflation data, since they reflect a period prior to the implementation of recent tariffs. “Therefore, we expect that there could be more volatility from inflation reads in the months ahead, particularly from the tariff-impacted goods side,” he added.

Janus Henderson has approximately $379 billion in AUM.

Brian Mulberry, client portfolio manager at Zacks Investment Management, said the softening inflation could potentially lead to rate cuts, although the April CPI data may be crucial.

“If we can establish this disinflationary trend once again in the face of tariffs and other pressures, the chances of easing monetary policy become more likely in May or June,” he said. “The bigger the disinflation, the more likely we can see multiple rate cuts, and that will be a positive lift for growth as the cost of capital comes down."

Zacks has $20.4 billion in AUM.