Markets are cautiously optimistic but remain wary of rising US tariffs and their potential inflationary impact, according to Schroders head of multi-asset and fixed income Australia, Sebastian Mullins. Schroders is a global asset manager offering a range of investment solutions. The company aims to help clients achieve their financial goals through active management and a focus on sustainable investing. Mullins noted that while initial trade agreements with Japan and Europe have eased concerns, uncertainty surrounding tariffs on China, Mexico, and Canada continues to keep markets on edge.
Currently, US tariffs average between 8 and 10 per cent, but Mullins cautioned that a rise to 17 per cent could push the economy toward stagflation – a combination of slowing growth and rising inflation. Schroders’ analysis suggests that with a 15 per cent tariff rate, the cost is evenly distributed among exporters, importers, and consumers. Mullins warns that if tariffs exceed 15 per cent, companies will be unable to absorb the costs, leading to higher inflation for consumers.
The Federal Reserve’s recent decision to maintain current interest rates reflects persistent inflation and a strong labour market, despite emerging signs of economic deceleration. Revised payroll data indicating weaker job growth further amplifies concerns about a softening economy.
Despite these potential risks, Mullins believes the risk of recession remains low. He pointed out that US corporations are continuing to surpass earnings expectations, which is encouraging. However, Mullins also cautioned that passing increased tariff costs onto consumers could intensify inflationary pressures if tariffs remain at elevated levels for an extended period.
