Washington Edition

This is Washington Edition, the newsletter about money, power and politics in the nation’s capital. Today, senior editor Edward Harrison, author of Bloomberg’s Everything Risk newsletter, assesses the market reaction to the president’s tariffs. Sign up here and follow us at @bpolitics. Email our editors here.

Market Mover

We’ve never seen an experiment with macroeconomic policy this large. I’m talking about the sweepingtariffs President Donald Trump announced today, of course.

Most economists will tell you that increasing tariffs tends to slow growth and raise inflation, a combination known as stagflation — the malaise that afflicted the US in the 1970s. Now, no one is forecasting anything like that — so far. But given that these are the most expansive trade restrictions in a century, anything is possible, including a recession.

Trump outlined his “Liberation Day” plan after the trading day ended in US markets. But investors have already placed their bets, with bonds trading as if a recession is a major risk and stocks doing their darnedest to price in something short of that.

On the bond side of the ledger, to protect against inflation over the next two years, the difference between the yield on a two-year bond and the yield of the equivalent inflation-protected security (TIPS) is about 3.3%. Yet bond markets are also predicting three fed rate cuts this year, despite those expected price pressures, so great is the angst about the economy slowing.

Stocks had their moment of weakness a couple of weeks ago when the S&P 500 fell briefly into official correction territory, down over 10% from all-time high hit less than two months ago. We’ve recovered some of those losses since then, as investors have recycled money out of the largest tech companies into safer bets like consumer staples.

Still, the broader market is still down some 8%. That’s not investors pricing equities for recession. By any measure, though, that’s a girding for a significant slowdown.

If tariffs do induce a recession, the mere fact that it’s an inflationary downturn limits the rate relief the Fed and bond markets can provide. And that means more downside risk for your 401(k), as well as the overall economy. — Edward Harrison

Key reading:

Don’t Miss

Senate Republicans unveiled a budget blueprint designed to fast-track Trump’s tax cut plans and an increase to the nation’s borrowing limit, ahead of a planned vote on the resolution later this week.

Amazon submitted a bid to the White House to purchase the social video app TikTok from its Chinese owners, though it’s not being considered seriously by the administration.

Photographer: NurPhoto/NurPhoto

US special envoy Steve Witkoff is expected to meet in Washington with senior Russian negotiator Kirill Dmitriev, an effort to smooth over tensions after Trump vented frustration with counterpart Vladimir Putin.

A federal judge dismissed corruption charges against New York Mayor Eric Adams, bringing a permanent end to the case and capping an extraordinary saga that sowed discord within the Justice Department.

The Trump administration rejected concerns that accused Venezuelan gang members deported under the Alien Enemies Act are at risk of torture in a notorious El Salvador prison.

A trust overseeing Trump’s $2.1 billion stake in the media company that owns Truth Social is keeping the door open to cashing in on its position, which for the past year has formed the bedrock of the president’s fortune.

Hiring at US companies accelerated last month above most estimates, rebounding from a weak February marked by severe weather in some regions of the country.

A White House adviser working on Health and Human Services Secretary Robert F. Kennedy Jr.’s chronic disease agenda, was booed and shouted down during a health conference.

Elon Musk’s candidate in a Wisconsin judicial race lost resoundingly despite the millions he poured into the campaign, while Republicans avoided upsets in two House seats in Trump’s home state of Florida.

Tesla’s vehicle sales fell 13% last quarter to an almost three-year low, as the carmaker made over its most important model and dealt with international backlash against Musk.

Watch & Listen

Today on Bloomberg Television’s Balance of Power early edition at 1 p.m., hosts Joe Mathieu and Kailey Leinz interviewed Republican Representative Marlin Stutzman of Indiana about the impact of tariffs on the economy and the federal budget.

On the program at 5 p.m., they talk with Ontario Premier Doug Ford about whether Canada should strike a bilateral trade deal with the US in the wake of Trump’s latest round of tariffs.

On the Odd Lots podcast, Bloomberg’s Tracy Alloway and Joe Weisenthal speak with Lev Menand, professor at Columbia Law School and author of The Fed Unbound, to talk about the huge stakes involved for the Fed and other independent government agencies in a suit challenging Trump’s firing of two Democratic commissions from the FTC. Listen on iHeart, Apple Podcasts and Spotify.

Chart of the Day

The average 30-year fixed-rate mortgage is currently around 6.7% in the US, but vast swathes of homeowners are paying much less than that. As of December, 72.1% of mortgaged homes have a rate below 5% and more than one in five had a rate below 3%. Mortgage rates bottomed in 2021 at just under 3% and people who have those loans generally are reluctant to lose that rate by moving. Still, life events such as marriages, births and retirements events do force some home churn. At the end of 2024, one in six homeowners had a rate above 6%, likely indicating the home was a recent purchase. That's the most since mid-2016. Broadly speaking, lower mortgage rates fuel demand among homebuyers and affect home affordability. Many people holding a sub-3% mortgage today would not qualify to purchase their home if that had to buy it at current mortgage rates. — Alex Tanzi

What’s Next

The nation’s trade balance in February will be reported at 8:30 a.m. tomorrow.

The weekly jobless claims report will be released at 8:30 a.m. tomorrow

A 25% tariff on imported vehicles is scheduled to take effect Thursday.

The unemployment rate for March will be reported on Friday.

Data on consumer borrowing will be reported on Monday.

The consumer price index for March will be released April 10.

The producer price index for March will be reported April 11.

The University of Michigan’s preliminary reading of consumer sentiment in April will be reported April 11.

Seen Elsewhere