Friday’s Supreme Court ruling that the tariffs imposed under Trump’s IEEPA authority were illegal gave the S&P 500 and Nasdaq a boost. Bitcoin price also climbed on hopes that removing a key inflationary factor would prompt the Fed to cut rates sooner.
The problem is that while the Supreme Court’s decision complicates the imposition of tariffs, there are alternative tools beyond the IEEPA. For example, Section 122 of the Trade Act of 1974 allows tariffs of up to 15% for 150 days in the event of an economic crisis, although only Congress can extend them, and Trump already used it on Saturday.
There is also Section 201, which protects U.S. industries from foreign competition; Section 301, which allows the U.S. Trade Representative to impose unlimited tariffs on countries with unfair practices, reviewed every four years; Section 338 of the Tariff Act of 1930, which allows tariffs of up to 50% or even total import bans against countries that discriminate against the US; and Section 232 of the Trade Expansion Act of 1962, Trump’s favorite, which allows unlimited tariffs if there is a “threat to national security.”
In the meantime, as companies passed more tariff costs to consumers, December PCE showed monthly inflation accelerating to 0.4% and year-on-year inflation at 2.9%, with core inflation rising to 3%. If this trend continues, the Fed could even consider raising interest rates, as suggested by the latest meeting minutes.
It also appears that, to prevent Trump from diverting Fed policy from employment and inflation data, rumors are spreading that Jerome Powell is working to strengthen the Fed’s independence, using strategies to win favor with Congress and encouraging dissent within committees, which could make it difficult for his successor to control the agenda.
If Powell succeeds, and tariffs remain while companies keep passing costs to consumers, the market could finish the year disappointed with the Fed’s stance, weighing on overall sentiment.
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