US NATGAS: Waha Gas Hub Falling on Day

That being said, there have been no concrete announcements on the trade front, only proposals. The most immediate is the potential imposition of tariffs on Mexico and Canada on February 1, whose near-term nature alone merits a cautious approach by the Fed this month (and even here, the deadline and the tariffs don't seem to be set in stone). 

• April 1 is another key date, by which time Trump has ordered reports on a broad variety of trade related topics, which are expected to lay the groundwork for future tariffs. So uncertainty will probably prevail until well into Q2, giving the Fed yet more reason to hold off on action.
• A less onerous tariff regime than feared could provide some impetus for the Fed to resume cuts. But the other two major areas of relevant policy – fiscal and immigration – aren’t likely to provide a clear picture for at least a few months either, and arguably these will have the larger macro impact. And indeed a relief on the tariff front could have a growth-positive, dollar-negative angle that adds to the case for being patient on cuts.
• Fiscal expansion was a key factor behind higher inflation in the pandemic cycle, and a fresh round of tax cuts on top of the long-assumed extensions are a big reason for post-election private sector exuberance. It could take months for Congress and the White House to emerge with a concrete fiscal package.
• And on immigration, FOMC members from hawks to doves have noted that supply-side labor market expansion helped keep the labor market from getting too tight in the recovery from pandemic recovery– the implication being that slower (or negative) immigration growth could lead to weaker growth and higher inflation.
• Powell’s unlikely to be pinned down on any of these matters: we expect vague language as usual, with some variation of his November press conference comment “we don’t guess, we don’t speculate, and we don’t assume”.
• It looks likely at this point that they will not be in a position to make any concrete assumptions until at least the May meeting. As we noted previously, that doesn't preclude a March cut, but such a decision will probably depend on two convincingly weak inflation reports between now and then.

• "Trump Officials Discuss Tighter Curbs on Nvidia China Sales" (BBG)
• From the Bloomberg report: “Trump administration officials are exploring additional curbs on the sale of Nvidia Corp. chips to China, according to people familiar with the matter, who emphasized that conversations are in very early stages as the new team works through policy priorities.”
• The latest headline contributing to stocks gapping to new session lows: S&P E-Mini futures down 46.25 points (-0.76%) at 6051.25 and the Nasdaq down 236.4 points (-1.2%) at 19500.08. In most recent trade, major indices appear to be stabilising with the FOMC decision in sight.
• Nvidia has argued that restrictions will hurt US companies and reinforce China's determination to become independent of US technology.

While the trajectory of the labor market and inflation are always a subject of FOMC uncertainty, the biggest policy unknown of all is how the Trump administration could impact the macro outlook and the monetary response. This is likely to be the dominant theme of the post-FOMC press conference today, but it's unlikely we will get much clarity from Chair Powell (and any such clarity could be market-moving).

• November’s election changed the game to some degree and the clouded policy outlook is a key factor in the Fed’s hesitation to cut further. December’s projections showed core PCE uncertainty was the highest in an upside direction that it's been since December 2022, with the jump in uncertainty to the upside is the most since March 2021.
• We commented ahead of the December FOMC that it’s unclear how participants will regard the economic impact of the Trump administration’s policies which center around lower taxes and deregulation, higher tariffs, and lower/more selective immigration. It’s unclear how many FOMC participants incorporated assumptions of future policy into their December forecasts, but the minutes said “a number” had done so. What those assumptions were and how they affected the forecast variables is likewise unclear.  
• Even if one knows what the policy will be, one must assess what the impact will be. For instance, it doesn’t appear that most Fed leaders are too concerned about the impact of possible tariffs on inflation. At the December FOMC, the staff projections saw a bump higher in 2025 inflation due to changed trade policy, but the impact over time did not change (the 2027 PCE forecast remained at 2%), suggesting that the tariff impact is seen (probably correctly) as a one-off.
• Also the minutes noted that "a few participants remarked that, in the period ahead, it might be difficult to distinguish more persistent influences on inflation from potentially temporary ones, such as those stemming from changes in trade policy that could lead to shifts in the level of prices."  Officials such as Gov Waller have said that one-off tariffs shouldn’t have a lasting tariff impact. And arguably, the negative growth impact from tariffs could make them a net-dovish development.