In this video, Vanessa Welch, Empower vice president for financial insights, and Marta Norton, Empower chief investment strategist, discuss the dual news around a 90-day tariff pause with China and the latest Consumer Price Index report covering April 2025. Here is a transcript:

Marta Norton: We've stepped back from the brink in terms of this trade war with China.

Vanessa Welch: Marta, let's start with this morning's CPI numbers. Inflation ticked up slightly in April, but less than expected. Are we seeing any early signs that tariffs are starting to have an impact, do you think?

Norton: So everyone's watching core goods to get a sense for what the tariff impact could be. That area has been a source of deflation in prior reports. It's now roughly flat — so maybe some modest impact there — but it's really at the margin.

Airline prices are down; that potentially reflects lower demand. We've seen that out of companies. That's an economic signal. A few other callouts: Shelter's contribution to inflation is still noticeable. It is coming down, but at a snail's pace. Food inflation — particularly from some relief in the egg market — has also come down.

Welch: Yeah, and that's helpful context. A little relief at the grocery store there. The real story this week, Marta, is the 90-day tariff pause between the U.S. and China. This sparked a significant rally in the markets yesterday.

Do you think this pause is enough to keep inflation in check?

Norton: Well, it's a big improvement. We were essentially looking at a trade embargo with China, and now we're looking at just your run-of-the-mill tariffs. But I don't want that change to overshadow the reality that we are looking at a very different trade regime. We've seen tariffs move up from about 2.5% pre-Trump to somewhere likely between 10% and 20% — and that's a very big magnitude of change. So we are likely to see some economic effect, including within inflation.

So with the embargo on pause — potentially off the table — we expect the inflation effect to be more muted, but there's still some possibility that we will see prices move higher with the policies that we see on the ground today.

Welch: And, Marta, you're always so good at giving us a forward-looking perspective. Do you think that this is just a temporary bounce, or could we be starting to see the start of a real shift? I mean, what needs to happen for this optimism to stick?

Norton: Okay, so we've stepped back from the brink in terms of this trade war with China. Now we're just looking at this tariff world. I wouldn't call it normal, but we're not on a path toward destruction. And I think we're going to see the markets embrace that narrative in the near term. And some areas that have been beaten down may now have a bit more of a tailwind. Tax policy could be another tailwind, depending on how the nuances of that package come together.

Welch: So let's bring the Fed into the conversation now. How does this tariff pause change the outlook for rate cuts in 2025?

Norton: I think there's less sense of emergency — potentially greater clarity — which would allow for cleaner choices between inflation and the labor market. My expectation is still for some cuts over the course of 2025, but not to the tune of what the market had been expecting — which was somewhere close to four. The market is now pricing in somewhere close to two, and I think that seems more reasonable given the climate that we're looking at today.

Welch: And after Liberation Day, Marta, you made the case for investors to take advantage of the cheap valuations, particularly for the Mag Seven and small caps. Do those opportunities still exist after yesterday's moves?

Norton: So it's been a lot of movement in markets over the past few weeks. We were concerned about valuations heading into Liberation Day — and then the market reaction in light of the big announcements that week — and then, you know, the development sense created some valuation openings within the Magnificent Seven in particular. Those got very cheap in our estimation, small caps as well. Both of those areas have rallied, particularly yesterday. They're still attractive, but, of course, that's changing in real time as we see the market move.

Welch: Marta, thank you as always for your analysis and your perspective. It's encouraging to hear that opportunities still do exist. You know, overall, I feel like it seems like we've stepped back from the brink, but there's still plenty of policy uncertainty ahead. We know jobs data, inflation, and the Fed's next move are all going to be major factors in the months ahead. We'll continue to watch it all closely for you right here on Taking Stock. Have a great day.