After President Trump took a hatchet to the tentative trade detente with China last Friday – effectively deleting the accounts of many crypto degens worldwide in the process – this week began with some less aggressive headlines out of the White House, with the President reassuring the public “everything will be fine” and Treasury Secretary Scott Bessent suggesting that all sides would like to de-escalate. However, the administration continues to try to thread the good cop / bad cop needle (often within the same 10-minute CNBC appearance), as Bessent also indicated this week that China can’t be trusted, the US has many levers still to pull, and the administration won’t be deterred by higher volatility in equities. Whatever jawboning and saber-rattling tactics both sides choose to amplify, it seems increasingly unlikely that this genie is going back into the bottle with the US now explicitly promoting industrial policy, Chinese assets in the US sphere of influence being nationalized, and “decoupling” firmly etched into the mainstream policy lexicon. At the same time, US credit markets and liquidity plumbing are possibly starting to get a little squirrely, as it seems more downmarket lending “cockroaches” are scurrying in plain sight every week and key benchmark interest rates are showing irregular excursions outside Fed policy bands (possibly exacerbated by a protracted government shutdown impeding liquidity transmission on the margin). While it’s far too soon to call a 🚨CRISIS😱, we wouldn’t be surprised to see this confluence of developments pull forward a more accommodative Fed stance, particularly as the Trump administration becomes increasingly clear about its many ambitious and fiscally demanding policy objectives.
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