Because the outcome of last week’s meeting of the Federal Reserve’s (The Fed) rate-setting committee meeting was never really in serious doubt, last week was always going to be a slow one. Sure enough, the Fed delivered precisely what was expected: Nothing at all. The post-decision press conference was equally plain (unless you count the impressive display of verbal agility shown by Fed Chairman Jerome Powell as he reinvented literally dozens of ways to say “wait and see”).

While some might call the Fed’s decision to keep its finger on the pause button wishy-washy and weak, I think most serious observers would agree that Wednesday’s Fed decision to leave rates alone while they wait to see which way things break was exactly correct. After all, there are still a lot of unknowns surrounding trade policy, the health of the economy, and just about everything else in the economic realm — and that’s almost as true today while the world digests the surprise thawing of trade tensions between the US and China on Sunday as it was on Friday evening when we all shut our computers down for the weekend assuming that China and its most profitable trade partner were still at each other’s throats.

More about that apparent trade truce in a moment. But for now, Powell’s recognition that the U.S. labor market continues to run at or near what he described as “maximum employment” allowed his Fed to remain contemplative despite a clear increase in risks to both sides of the Fed’s mandate. It was also interesting to hear Powell wax philosophic about the role of so-called “soft data” like consumer and business confidence surveys, which he described as having a notably “poor fit” to future economic performance even while also acknowledging that their recent erosion was remarkably sudden and deep.

By one read, that last part could be Powell’s way of admitting that the sheer speed of the turn in attitudes means that “this time could be different” as far as the famously poor track record of sentiment surveys in predicting the future is concerned. We all know how well such “it’s different this time” statements usually turn out, but he might have a point; and the flat performance of Molson-Coors last week when it released its quarterly results might be the best evidence that this time, the soft data could actually be telling us something.

The company’s portfolio of beer brands is impressive (and, importantly for this discussion, primarily U.S.-based). But apparently, we’re all doing a little bit less of that kind of stuff these days, because the company’s first-quarter earnings missed estimates by a pretty wide margin. More tellingly, the company bemoaned a relatively dramatic, high single-digit decline in domestic beer volumes and cut guidance for the remainder of the year.

I point this out because beer has one of the lowest demand elasticities in the beverage industry.¹ Translation: Demand for beer falls only very reluctantly. If people are suddenly drinking less beer, it’s a pretty safe bet that something, somewhere, isn’t working quite right.

Of course, Molson-Coors is hardly alone in backing away from its forward-looking guidance this quarter. We’ve discussed some of the more interesting anecdotes in earlier versions of this Perspective, including United Airline’s groundbreaking use of dual forecasts a few weeks ago and a handful of other examples as evidence. The drumbeat continued last week outside of the beer business, too, with automaker Ford — among others — notably stepping away from its forecast amid an unsettled demand environment and potential tariff-related snags to some of its North American production facilities.

But the downbeat mood isn’t universal or even necessarily pervasive — some companies, including Disney (who reported after Ford last week but before Molson-Coors,) have actually upped guidance despite all this uncertainty. Whether that simply proves that every period of turmoil (including this one) will invariably have individual winners and losers or simply highlights the uncertainty currently coursing through the hallways of America’s capital markets and C-suites like fluorescent dye in a heart scan, is an open question. But it’s certainly one that will influence how things turn out for the remainder of the year in pretty profound ways.

In fact, the biggest unknown for both markets and the economy right now is whether or not a month’s worth of post-“Liberation Day” uncertainty has permanently scarred America’s (and the world’s) psyche, or if we can put our troubles aside and quickly move on if the shooting stops. For now, it’s starting to look as if the big surge in tariff pre-buying is starting to wane, and given how long it takes a sudden drop in demand to reverberate through the economy, it’s fair to wonder if significant, growth-sapping damage hasn’t already been done to the economy even if a trade armistice is signed today.

Which, of course, brings us to last week’s developments in what we may call "World (Trade) War II.” The week began with what now looks almost like a trial balloon — a deal with London that brought the majority of tariffs imposed by the U.S. back to what appears to be the new baseline level of 10%.² Initial reaction to Monday’s deal was positive, but not exactly euphoric — mostly because the U.S. doesn’t run a significant trade deficit with the U.K. (and probably also because America’s relations with the U.K. are hardly contentious). And to be fair, the U.K. deal also had at least one surprising positive: It also loosened product-specific tariffs on autos and industrial metals that the administration might have otherwise been inclined to treat separately. That showed pragmatism and a willingness to relent on behalf of the U.S. to negotiate that is clearly welcome.

But the Real Big Deal came over the weekend when the U.S. and China announced what amounts to a(nother) 90 pause in tensions. Under the terms of the understanding,3 both China and the U.S. will reduce the tit-for-tat tariffs lobbed back and forth at one another since April, while leaving a baseline duty of 10% in place for 90 days to give negotiations time to bear permanent fruit (notably, the U.S. also left in place the “fentanyl tariffs” of 25% imposed before “Liberation Day”).

Sunday’s deal was unquestionably a big leap back from the recession abyss and a happy surprise, especially since President Trump said as recently as Friday that 80% “feels about right” for China tariffs. But far less surprising was the market’s reaction to it.  As I write this, U.S. equity markets are rallying, and it’s easy to get caught up in optimism surrounding what appears to be a rapid thaw in tensions. But my brain bears enough deep scars from years spent watching markets far too closely to yet fully trust the euphoria. At a minimum, the price action for the remainder of today — not to mention the remainder of this week — will become an important referendum on how much of this type of skepticism still resides in markets.

Make no mistake, Sunday’s announcement appears to be a big step in the right direction. But 10% is still 10%, and if the deals struck with China and the U.K. indeed become the template for future deals with the rest of the world, economists still face an important task in figuring out exactly what the blowback of an implicit 10% consumption tax on the U.S. consumer will be. 

Until then, it looks like Jerome Powell won’t be the only one forever looking for new and clever ways to say “wait and see.”

What to watch this week

With last week’s deals still fresh, tariff talk looks likely to recapture the narrative after exactly one week of reprieve. Next up, one might hope, would be some kind of announcement regarding a trade deal with the European Union. While there hasn’t yet been an overwhelming amount of news surrounding the status of U.S./E.U. negotiations, significant progress on that front would obviously help ease the trade-related heartburn markets have been suffering since early April. Watch, too, for any signs that either the U.S. or China is backing down from (or doubling up on) the terms of Sunday’s agreement.

Meanwhile, earnings season has peaked and the volume of potentially market-moving releases is now beginning to wane. That said, nearly 400 U.S. companies are scheduled to report on both Monday and Tuesday, with another 200 or so on each of the following two days. As always, any time you put a microphone in the hands of a CEO or a CFO you’ve created the potential for fireworks. This week, the company most likely to generate such pyrotechnics is Walmart, currently scheduled for Thursday. Besides being the best read into U.S. retail trends this side of the Amazon, Walmart obviously sources a huge part of what it sells from China. Any comments its executives have on the state of U.S./China tensions will therefore be screened carefully by investors, as will anything the company has to say about the health of the American consumer.

Speaking of retail sales, we’ll get an official read on April spending at the retail level from the U.S. Census Bureau on Wednesday. This will be among the first post-“Liberation Day” economic releases that we’ve received so far, and one with an obvious connection to the trade war. Of particular interest will be sales data for any category with significant exposure to imports (and specifically, China): Furniture and electronics are two obvious candidates for scrutiny.

For a more focused read on the consumer, you might ordinarily look to Friday’s mid-month update of consumer sentiment from the University of Michigan (UofM). But the survey period for this Friday’s upcoming report ended on May 12, the same day the Trump Administration announced the 90-day pause with China. For that reason, expect the results to be out-of-date and skewed to the downside and focus instead on the UofM’s final read, due out on Friday, May 30, for a more up-to-date view. Same goes for Tuesday’s small business sentiment index from the National Federation of Independent Businesses and the first two regional Fed manufacturing reports – Empire State and Philadelphia — all of which are unlikely to capture any change in sentiment related to Sunday’s deal.

Next up, we’ll get April’s Consumer Price Index (CPI) on Tuesday, followed by producer prices (PPI) on Thursday. It might still be too early to draw a direct line between tariffs and inflation except what has been generated so far by pull-forward demand and tariff front-running. That said, those impacts could be significant, and the potential for tariff-related inflation loomed large in the Fed’s post-decision discussion last week, meaning that this week’s inflation data should probably be number one or number two on your list of what to watch this week.

Finally, Friday’s release of the so-called Treasury International Capital (TIC) data could be worth a look, if only to familiarize yourself with what’s included in it. Among other things, this release details how much U.S. Treasury Debt and other domestic securities are held by foreign investors and normally gets roughly zero attention. But one of the more alarmist interpretations of the post-Liberation sell-off in bonds was a concern that overseas investors were selling U.S. securities in bulk as a result of the administration’s trade policies. We’re skeptical that such selling — whether motivated by revenge or simple fears about global growth — is to blame and would therefore be surprised if it showed up unambiguously in TIC data now or in the future. Besides, as with the sentiment data discussed above, Friday’s TIC data — which will cover cross-border asset flows through March — will reflect a less-than up-to-date view of the world. Sorry, secular dollar bears, you’ll have to wait at least another month to prove your point.