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Mumbai, The <keyword id="19899808" type="General" weightage="20" keywordseo="RBI" source="keywords" meta.keywordsubtype="org" meta.entityname="RBI" meta.hostid="261" meta.entityid="RBI">RBI</keyword> expects the price of the Indian basket of <keyword id="20023856" type="General" weightage="20" keywordseo="crude-oil-imports" source="keywords">crude oil imports</keyword> to be around $85 per barrel going ahead amid geopolitical tensions which have "imparted significant uncertainty" to the outlook. India exports around 85 per cent of its crude requirement, and soaring oil prices which have often crossed the $90 a barrel mark in recent years, tend to drag down the economy. The RBI's monetary policy report released on Friday states that international crude prices exhibited sizeable two-way movements in the second half of 2023-24, falling in October-December 2023 to around $75 per barrel on slowing global demand amidst weak manufacturing activity and easing demand for transportation fuels as well as supply increases from non-OPEC countries. However, amidst intensifying hostilities in the <keyword id="19904316" type="General" weightage="20" keywordseo="middle-east" source="keywords">Middle East</keyword>, deep output cuts by OPEC plus cartel, and incidents of supply outages, international crude prices moved higher from mid-December reaching an average close to $85 per barrel in March, the report points out. "The spread between global petroleum product prices and crude prices eased from its recent peaks in mid-2022 but remains elevated by historical standards in view of demand-supply refinery mismatches. Taking into account these factors, the baseline assumption for the crude price (Indian basket) is retained at $85 per barrel," the report states. Regarding the outlook for the rupee, the report states that the nominal exchange rate of the Indian currency saw two-way movements in the range of Rs 82.8-83.4 per US dollar in the second half of 2023-24. Taking into consideration the uncertainty around US dollar movements, the ebbs and flows of global capital flows and international crude oil prices, the baseline assumption for the exchange rate is revised to Rs 83 per US dollar. It also sees as a positive factor in the global growth forecast for 2024 being revised upwards by 20 bps to 3.1 per cent by the <keyword id="19916590" type="General" weightage="20" keywordseo="international-monetary-fund" source="keywords">International Monetary Fund</keyword> (IMF) in its January 2024 update of the <keyword id="20389978" type="General" weightage="20" keywordseo="world-economic-outlook" source="keywords">World Economic Outlook</keyword> (WEO) from its October 2023 projection. Global economic growth is expected to increase marginally to 3.2 per cent in 2025 and global trade growth (goods and services combined) is projected to accelerate from 0.4 per cent in 2023 to 3.3 per cent in 2024 and further to 3.6 per cent in 2025. However, the headwinds from protracted geopolitical tensions and increasing disruptions in trade routes pose risks to India's growth outlook, according to the report. Taking all these factors into consideration, India's real GDP growth for 2024-25, is projected at 7.0 per cent, with Q1 at 7.1 per cent; Q2 at 6.9 per cent; Q3 at 7.0 per cent; and Q4 also at 7.0 per cent. The risks are evenly balanced, the report adds.

RBI sees price of India's crude oil imports at $85 a barrel in FY25

<ul><li>US stocks slipped on Monday after strong economic data and new comments from Jerome Powell dashed hopes for a March interest rate cut.</li><li>The January ISM report showed a surge in manufacturing and services activity.</li><li>Fed Chairman Jerome Powell told "60 Minutes" that "the job is not quite done" when it comes to inflation.</li></ul>US stocks tumbled on Monday after strong economic data and new comments from Federal Reserve Chairman Jerome Powell dashed investor hopes for a March interest rate cut.The January ISM report showed a surge in both manufacturing and services activity, which has been a leading indicator for the stock market and the economy alike. ISM manufacturing new orders rose more than five points and jumped above 50 for the first time since March 2022, according to the report. The strong economic data, <a href="https://www.businessinsider.com/jobs-labor-market-unemployment-rate-wage-growth-january-economy-2024-2">combined with the impressive January jobs report</a>, should give the Fed more flexibility in the timing of its interest rate cuts.Meanwhile, <a href="https://www.businessinsider.com/powell-60-minutes-interview-fed-interest-rate-cuts-before-election-2024-2">Powell told "60 Minutes" in an interview that aired on Sunday</a> that the central bank's key task in reigning in inflation isn't finished. Powell said cutting interest rates too soon poses a risk because "the job is not quite done" in taming inflation."The prudent thing to do is to, is to just give it some time and see that the data continue to confirm that inflation is moving down to 2% in a sustainable way," Powell said.Those comments dashed investor hopes of an interest rate cut at the Fed's March meeting, with the probability of a rate cut falling to 16.5% on Monday from nearly 50% last week, according to the CME Fed Watch Tool. Here's where US indexes stood at the 4:00 p.m. closing bell on Monday: <ul><li><a href="https://markets.businessinsider.com/index/s&amp;p_500?utm_source=markets&amp;utm_medium=ingest%3Futm_source%3Dmarkets&amp;utm_medium=ingest&amp;utm_medium=ingest&amp;utm_source=markets">S&amp;P 500</a>: 4,942.81, down 0.16%</li><li><a href="https://markets.businessinsider.com/index/dow_jones?utm_source=markets&amp;utm_medium=ingest%3Futm_source%3Dmarkets&amp;utm_medium=ingest&amp;utm_medium=ingest&amp;utm_source=markets">Dow Jones Industrial Average</a>: 38,380.12, down 0.71% (-274.30 points)</li><li><a href="https://markets.businessinsider.com/index/nasdaq_composite?utm_source=markets&amp;utm_medium=ingest%3Futm_source%3Dmarkets&amp;utm_medium=ingest&amp;utm_medium=ingest&amp;utm_source=markets">Nasdaq Composite</a>: 5,597.68, down 0.20%</li></ul>Here's what else happened today: <ul><li><a href="https://www.businessinsider.com/china-csrc-vows-save-stock-market-crash-investors-not-convinced-2024-2#:~:text=China%20Securities%20Regulatory%20Commission%20vowed,trillion%20since%20peaking%20in%202021.">Chinese stocks dropped in a volatile session of trades</a> after the China Securities Regulatory Commission said on Sunday it would prevent "abnormal market fluctuations."</li><li><a href="https://www.businessinsider.com/donald-trump-china-tariffs-economy-stock-market-crash-goldman-sachs-2024-2">Chinese investors aren't just worried about China's faltering economy</a> — they're also fretting about Donald Trump's potential return to the White House, according to Goldman Sachs.</li><li><a href="https://www.businessinsider.com/jeff-bezos-elon-musk-net-worth-wealth-amazon-tesla-stock-2024-2#:~:text=Jeff%20Bezos%20is%20not%20far,the%20wealth%20rankings%20this%20year.">Jeff Bezos is just $8 billion away from overtaking Elon Musk</a> to become the world's wealthiest person after the sharp decline in Tesla stock this year.</li><li><a href="https://markets.businessinsider.com/news/stocks/economy-stock-market-rally-federal-reserve-inflation-recession-soft-landing-2024-2">A "Goldilocks" scenario is looking more likely for the economy,</a> and that could lead to a soaring stock market, according to UBS. </li></ul>In commodities, bonds, and crypto: <ul><li><a href="https://markets.businessinsider.com/commodities/oil-price">West Texas Intermediate</a> crude oil jumped 0.73% to $72.81 a barrel. <a href="https://markets.businessinsider.com/commodities/oil-price">Brent crude</a>, the international benchmark, rose 0.93% to $78.05 a barrel. </li><li><a href="https://markets.businessinsider.com/commodities/gold-price">Gold</a> declined 0.58% to $2,041.60 per ounce. </li><li>The 10-year Treasury yield surged 14 basis points to 4.17%.</li><li><a href="https://markets.businessinsider.com/currencies/btc-usd">Bitcoin</a> dropped 0.69% to $42,409.06. </li></ul>

US stocks fall amid more strong economic data and Powell's comments on rate outlook

<keyword id="19895063" type="General" weightage="20" keywordseo="India" source="keywords">India</keyword>'s <keyword id="19978688" type="General" weightage="20" keywordseo="gold-demand" source="keywords">gold demand</keyword> rose 8 per cent annually to 136.6 tonne in the March quarter helped by a strong <keyword id="21477327" type="General" weightage="20" keywordseo="economic-environment" source="keywords">economic environment</keyword> despite prices touching historic highs, according to the <keyword id="20195223" type="General" weightage="20" keywordseo="World-Gold-Council" source="keywords" meta.keywordsubtype="org" meta.entityname="World Gold Council" meta.hostid="261" meta.entityid="World Gold Council">World Gold Council</keyword>. The aggressive gold buying by the Reserve Bank of India (<keyword id="19899808" type="General" weightage="20" keywordseo="RBI" source="keywords">RBI</keyword>) also contributed to the rise in demand. India's gold demand in value terms rose 20 per cent on an annual basis to Rs 75,470 crore during the January-March period of this year on volume growth as well as a rise in quarterly average prices by 11 per cent. On Tuesday, the World Gold Council (WGC) released its global report 'Gold Demand Trends Q1 2024', showing that India's total gold demand, including both jewellery and investment, increased to 136.6 tonne in January-March this year from 126.3 tonne in the year-ago period. Out of the total gold demand, the jewellery demand in India increased 4 per cent to 95.5 tonne from 91.9 tonne. The total investment demand (in the form of bar, coin among others) grew 19 per cent to 41.1 tonne from 34.4 tonne. Sachin Jain, Regional CEO, India, WGC, said the rise in gold demand reaffirms Indians' enduring relationship with gold. "India's continued strong macroeconomic environment was supportive for gold jewellery consumption even though prices reached a historic high in March leading to a slowdown in sales as the quarter ended," he added. Jain expects the gold demand in India to be in the range of 700-800 tonne during this year. If the price rally continues, he said the demand could be at the lower end of this range. In 2023, the country's gold demand was 747.5 tonne. Asked about the factors driving demand growth in January-March, Jain told PTI, " Historically, eastern markets of the world including India and China respond when the prices are going down and there is a fluctuation, whereas western markets respond when the prices are going up." "For the first time we have seen a complete reversal where Indian and Chinese markets have responded to an increase in prices of gold," he said. Jain said the demand for jewellery as well as investment products like bar, coin and ETF has gone up. "The second reason for the increase in demand has been the buying by the central bank RBI," he said. While the RBI bought 16 tonne of gold in the full 2023, it has already purchased 19 tonne in the first quarter of this calendar year, Jain highlighted. He mentioned that the RBI has indicated that it would continue buying. Asked about the outlook for the April-June quarter, Jain said the demand might slow down due to a sharp rally in gold prices and the ongoing election process. As per the WGC data, India's gold demand in value terms rose 20 per cent to Rs 75,470 crore from Rs 63,090 crore. Out of this, the jewellery demand grew 15 per cent to Rs 52,750 crore from Rs 45,890 crore, while gold investment demand went up 32 per cent to Rs 22,720 crore from Rs 17,200 crore. The WGC also mentioned that the total gold recycled in India stood at 38.3 tonne in January-March, up 10 per cent from 34.8 tonne in Q1 2023. "Total gold imports in India in Q1 2024 was 179.4 tonne, up by 25 per cent compared to 143.4 tonne in Q1 2023," the Council said. The average quarterly price in Q1 2024 was Rs 55,247.20 per 10 gm of gold as against Rs 49,943.80 per 10 gm in Q1 2023 (without import duty and GST) "Q1'24 also saw healthy levels of gold bar and coin demand in India, up 19 per cent year-on-year at 41 tonne. This was on a par with Q1'22, which was itself the strongest first quarter since 2014," Jain said. The price correction in February sparked investors' interest, with anticipation of a rebound driving purchases, he added. "As the price rallied to successive record highs, investors remained bullish, contributing to the robust demand," Jain said. Investments into gold ETF too saw positive inflows of over 2 tonne. "Although Indian recycling volumes increased 10 per cent to 38.3 tonne in Q1'24, there were very few reports of distress selling. With a strong economy and expectations of a normal-to-good monsoon, there seems little desire to cash in on high gold prices at the moment," Jain said. The current high gold prices might temporarily put a strain on demand, he said. However, Jain said, "strong cultural and seasonal factors such as festivals, weddings helped by an expectation for a better monsoon and solid economic growth would support demand." 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India's gold demand up 8% in Jan-Mar to 136.6 tonne despite high rate

<ul class="summary-list"><li>The CSI 300 Index hit fresh four-year lows Tuesday, trading at its lowest since February 2019. </li><li>The stock moves followed Moody's downgrade of China's credit outlook.</li></ul>China's benchmark <a href="https://markets.businessinsider.com/index/csi-300">CSI 300</a> stock index tumbled 1.9% to fresh four-year lows Tuesday, hitting its lowest level since February 2019 following Moody's downgrade of the country's credit outlook.The index has lost 12% year-to-date. The <a href="https://markets.businessinsider.com/index/hang_seng">Hang Seng China Enterprises Index</a> also declined 1.6% Tuesday to its lowest since November 2022. The MSCI China index fell more than 2% to its lowest since November 2022. The stock sell-off comes as investors fear further weakening of the world's second largest economy after <a href="https://www.businessinsider.com/china-economy-debt-crisis-moodys-bonds-evergrande-stock-market-analysis-2023-12">Moody's lowered its outlook for China's sovereign bond rating</a> from stable to negative, highlighting the <a href="https://www.businessinsider.com/china-economy-deflation-markets-property-real-estate-housing-beijing-2023-8">economic turmoil facing the country.</a>Moody's pointed to Beijing's use of fiscal stimulus to prop up local governments — the country's on track for <a href="https://asia.nikkei.com/Spotlight/Caixin/Five-things-to-know-about-China-s-unusual-sovereign-bond-issue#:~:text=The%20Chinese%20government%20took%20a,a%20record%20high%20of%203.8%25." target="_blank" rel="noopener">record bond issuance in 2023</a> — and a worsening real estate crisis as risks to stability. Chinese officials said they were "disappointed" with the downgrade, and that the country would remain resilient. Since officials lifted China's zero-COVID policies, the country's rebound has been a disappointment. A slate of headwinds have materialized, including declining foreign trade, <a href="https://markets.businessinsider.com/news/bonds/china-economy-country-garden-defaults-property-real-estate-bonds-dollar-2023-10">highly indebted property developers</a>, deflation, demographic challenges, and <a href="https://www.businessinsider.com/china-housing-market-economy-japan-jpmorgan-financial-investors-geopolitics-demographics-2023-8">risks of "Japanification,"</a> as JPMorgan strategists said in a note in August.Data released last week showed China's manufacturing and services activities contracted in November, and the readings reinforced the government's case to prop up the economy with further fiscal stimulus. "The outlook change also reflects the increased risks related to structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector," the ratings agency said.In August, Chinese officials had <a href="https://www.businessinsider.com/china-economy-recession-inflation-deflation-fdi-growth-beijing-xi-jinping-2023-8" rel="">urged economists not to portray data unfavorably</a>, the Financial Times reported, and to instead "interpret bad news from a positive light."

China stocks tumble as Moody's outlook downgrade deepens investors' economic fears

<ul class="summary-list"><li>The price of gold hit all-time highs this week.</li><li>Falling interest rates and rising geopolitical tensions boost gold's appeal as a safe haven asset.</li></ul>The price of <a target="_blank" class="" href="https://markets.businessinsider.com/commodities/gold-price">gold</a> has soared this year.The precious metal hit a record high of $2,772 per troy ounce this week and has risen in six of the past seven weeks.With year-to-date gains of about 33%, gold returns have outpaced the broader stock market, including the tech-heavy <a target="_blank" class="" href="https://markets.businessinsider.com/index/nasdaq_100">Nasdaq 100</a>, by about 10 percentage points.And since the bull market in stocks began in October 2022, gold has outpaced equity gains, returning 67% compared to the <a target="_blank" class="" href="https://markets.businessinsider.com/index/s&amp;p_500">S&amp;P 500's</a> return of about 63%, according to data from YCharts.Those superior returns make the metal one of the world's hottest investments.The largest gold ETF, the SPDR Gold Shares, has $78 billion in assets under management and has seen about $5 billion of inflows in the past six months, according to data from ETF.com.Physical gold is also having a moment. Costco has consistently sold out of gold bars when they become available on their website and Wells Fargo estimates that <a target="_blank" class="" href="https://www.businessinsider.com/costco-gold-bars-silver-coins-monthly-sales-wells-fargo-bullion-2024-4">Costco sells up to $200 million in gold bars</a> and silver coins to its members each month.It's been a perfect storm for the yellow metal, and the outlook suggests more gains ahead. Here's what's going on.<h3 id="5edb3548-699e-4d4d-ba18-d306c30fcf12">Demand from central banks</h3>Global central banks have been on a gold-buying spree over the past few years.According to the World Gold Council, central banks purchased a record 483 tons of gold in the first half of the year. Central banks from Turkey, India, and China topped the list of the biggest buyers.Part of the surge in demand is from countries that want to diversify their holdings away from the US dollar. "We believe that the tripling in central bank purchases since mid-2022 on fears about US financial sanctions and US sovereign debt is structural and will continue," <a target="_blank" class="" href="https://markets.businessinsider.com/news/commodities/gold-price-outlook-buy-continued-rally-next-year-2025-goldman-2024-9">Goldman Sachs said</a> in a note last month.This dynamic has been on display since Russia invaded Ukraine in 2022, as America sought to inflict maximum economic damage on Russia via sanctions. But it's harder to implement sanctions against a country that is less reliant on the dollar, and one way to be less reliant on the dollar is to buy gold.It is a dynamic that the US should be closely monitoring, according to economist Mohamed El-Erian.El-Erian wrote <a target="_blank" class="" href="https://www.ft.com/content/b5fb1e6b-bb8d-4ab5-9c92-f1f6fc40a54b?utm_source=substack&amp;utm_medium=emailhttps://www.ft.com/content/b5fb1e6b-bb8d-4ab5-9c92-f1f6fc40a54b?utm_source=substack&amp;utm_medium=email">in an op-ed for the FT</a> this week that the persistent rise in gold "captures an increasingly persistent behavioural trend among China and 'middle power' countries.""There is also interest in exploring possible alternatives to the dollar-based payments system that has been at the core of the international architecture for some 80 years."Russia has had some success with this, as it's managed to navigate its economy away from a full-fledged downturn after the US imposed wide-ranging sanctions in 2022.Russia's ability to steer its de-dollarized economy away from a crisis could give other countries confidence to lessen their dependence on the dollar, which ultimately benefits gold."What is at stake here is not just the erosion of the dollar's dominant role but also a gradual change in the operation of the global system," El-Erian said. "As it develops deeper roots, this risks materially fragmenting the global system and eroding the international influence of the dollar and the US financial system.<h3 id="8959c97e-7efe-42f8-a1a3-3fa362c5ac51">Geopolitical tensions</h3>Gold is <a target="_blank" class="" href="https://markets.businessinsider.com/news/commodities/gold-safe-haven-treasurys-us-national-debt-bofa-fiscal-expansion-2024-10">considered a safe haven asset</a> due to its long-standing history as a stable store of value.So when geopolitical tensions rise, investors tend to flock to the shiny metal, and right now, there is no shortage of reasons to be worried.From Russia's war against Ukraine to the escalating clashes in the Middle East to China's long-running threat against Taiwan's independence, geopolitical tensions are rising, not falling.What's more, soaring US debt means that Treasurys—another historical safe haven asset—might not be so risk-free anymore."Gold looks to be the last 'safe haven' asset standing, incentivising traders including central banks to increase exposure," <a target="_blank" class="" href="https://markets.businessinsider.com/news/commodities/gold-safe-haven-treasurys-us-national-debt-bofa-fiscal-expansion-2024-10">Bank of America said</a> in a note this month. <h3 id="29ec9208-7951-47bd-89c8-75f2d6320ca9">The Trump trade</h3>The <a target="_blank" class="" href="https://markets.businessinsider.com/news/stocks/donald-trump-trade-rally-betting-markets-kamala-harris-bitcoin-djt-2024-10">Trump trade has picked up steam recently</a> as the former president's odds of winning the election have risen, and gold has been a big beneficiary.That's because a potential Trump presidency is expected to be accompanied by a soaring government deficit and a fast-growing pile of debt, which would further drive concerns about a rebound in inflation and the sustainability of the US dollar."If you're worried about fiscal profligacy, financial repression, and attacks on Fed independence, gold would be an attractive asset," economist Davix Oxley of Capital Economics said on Friday.Even if Trump doesn't win the election, the deficit is likely to grow, setting gold up well for more gains, according to Interactive Brokers chief strategist Steve Sosnick."It's not as though either candidate is preaching fiscal discipline, and the Fed seems willing to keep cutting even if inflation remains a bit above target. So there is a thought that gold could be a viable alternative if rates rise and the economy remains sound. And if the economy isn't sound it could still be a good store of value," Sosnick told Business Insider."<h3 id="dadb04c2-defd-4fe4-a269-2b48d277b4de">Interest rates</h3>According to data from the World Gold Council, falling interest rates have historically benefited gold prices, with the commodity rising as much as 10% in the six months after the Federal Reserve's first rate cut.With the Fed expected to cut interest rates multiple times over the next year, lower rates should serve as a tailwind for gold prices.While interest rates<a target="_blank" class="" href="https://www.businessinsider.com/mortgage-rate-increase-since-federal-reserve-cut-interest-rates-housing-2024-10"> actually jumped since the Fed's first rate cut</a> last month, with the 10-year Treasury yield hitting its highest level since July this week, gold prices have continued to rise.That's a sign that gold investors are more focused on the global interest-rate path, which is pointing lower as global central banks look poised to loosen monetary policy.The People's Bank of China cut rates by 25 basis points this week, while the Bank of Canada cut by 50 basis points. The European Central lowered rates by 25 basis points last week, and economists say they see the Bank of England <a target="_blank" class="" href="https://www.cnbc.com/2024/10/22/why-economists-see-the-uk-cutting-interest-rates-more-substantially.html">set to deliver bigger rate cuts</a> than previously expected by markets.

How gold became one of the world's hottest investments

<ul class="summary-list"><li>Stocks had a day to remember after Donald Trump won back the White House.</li><li>Market veteran David Kelly believes Wall Street is overlooking a key economic risk.</li></ul>Markets are celebrating <a target="_blank" href="https://www.businessinsider.com/donald-trump-wins-presidential-election-race-2024-11">Donald Trump's election as president</a>, though the leading strategist at JPMorgan's multi-trillion asset management arm is not in the mood to party.US stocks had one of their best days in years and hit new records after Trump's resounding win over Kamala Harris in Tuesday's election. The S&amp;P 500, the growth-heavy Nasdaq Composite, and the small-cap heavy Russell 2000 rocketed between 2.5% and 5.8% higher on Wednesday.That broad-based equity rally didn't include bonds, which got shelled on Wednesday. Yields, which move inversely to bond prices, vaulted higher for US Treasuries across durations.Both of those moves make sense, said David Kelly, the global strategy chief at JPMorgan Asset Management, in an interview on Wednesday."If you have a Republican sweep, then Donald Trump can push through <a target="_blank" href="https://www.businessinsider.com/tax-cut-tariff-plan-outlook-presidential-election-scenarios-harris-trump-2024-10#big--and-small-business-owners">whatever tax bill he wants to in 2025</a>, pretty much," Kelly said. "There is potential for <a target="_blank" href="https://www.crfb.org/blogs/donald-trumps-proposal-lower-corporate-tax-rate-15">significant tax cuts</a>, and we know that has such a direct impact on corporate earnings — after-tax corporate earnings — that that is, logically, very positive for the stock market."But while Wall Street might cheer those tax breaks, Kelly warned that they could lead to higher inflation, one of Democrats' liabilities in this election cycle.Corporate tax cuts could have consequences, in Kelly's view, as he said they'd cause inflation to rise alongside the US national debt burden. That would be a major headwind for bonds, and stocks might also get dragged down.<h2 id="9ce813f5-aaa4-4439-aa03-ba3a4736747d">Tariffs could be a terrible outcome for stocks</h2>If one of Kelly's highest convictions hunches is correct, this market rally is in trouble anyway.The strategy chief has been adamant that higher tariffs — <a target="_blank" href="https://www.businessinsider.com/global-reaction-donald-trump-election-victory-tariffs-trade-disputes-2024-11">one of Trump's key proposals</a> — <a target="_blank" href="https://www.businessinsider.com/economy-outlook-tariffs-trump-trade-war-slowdown-jpmorgan-david-kelly-2024-10">would cripple the US economy</a> and endanger the global economic expansion."Tariffs are not a good idea," Kelly said at a late-October press event hosted by JPMAM. "It's kind of like a nuclear threat — the whole point is, if you actually end up using it, you kind of screwed up somewhere."Most economists condemn tariffs, which are taxes on imports, because they tend to lead to higher prices and lower economic growth. Kelly has said he'd have to <a target="_blank" href="https://www.businessinsider.com/economy-outlook-tariffs-trump-trade-war-slowdown-jpmorgan-david-kelly-2024-10">increase his inflation target and slash his long-term growth outlook</a> if Trump followed through on his tariff proposals, given that they'd almost certainly prompt counter-tariffs that would hurt US exporters as well."Retaliatory tariffs hurt growth in both countries and push up inflation in both countries," Kelly recently said. "They're actually sort of the magic stagflation elixir. There are very few things that will actually give you a stagflationary impulse, which both slows growth and increases inflation."A global trade war is a frightening possibility that now seems increasingly realistic. Paraphrasing Mahatma Gandhi, Kelly said that "a tariff for a tariff will make the whole world poor."On the campaign trail, <a target="_blank" href="https://www.pbs.org/newshour/economy/trump-favors-huge-new-tariffs-how-do-they-work">Trump teased aggressive tariffs</a>: a 60% tax on Chinese goods and as much as a 20% upcharge on all other imports. When asked whether there was any chance that those proposals could be effective, the strategy chief had a simple answer that he didn't hedge."No," Kelly said. "I'm not trying to be political at all. I thought this was consensus, actually. I thought the biggest people in favor of free trade was the Republican party."Kelly later added: "I challenge anybody to show me a long-term study which shows that tariffs actually do promote stronger economic growth or stronger job growth domestically because I've never seen it."<h2 id="15c4690f-5250-4143-8288-a419b887c658">Why tariffs should be taken with a grain of salt</h2>Although Kelly is far from alone in his antipathy to tariffs, it's worth noting that most of his counterparts are much less concerned about that part of <a target="_blank" href="https://www.businessinsider.com/donald-trump-election-victory-impact-investments-costs-housing-taxes-childcare-2024-11">Trump's economic agenda</a>.One exception is Tom Orlik of Bloomberg Economics, who's firmly in Kelly's camp. The economist said at a conference his firm hosted in early October that Trump's tariffs <a target="_blank" href="https://www.businessinsider.com/election-trump-harris-economy-inflation-stock-market-volatility-risk-orlik-2024-10">would cause "seismic shocks to the US economy"</a> by throttling growth and sparking inflation.But Chris Murphy, Susquehanna's cohead of derivatives strategy and a copanelist with Orlik, reasoned that <a target="_blank" href="https://www.businessinsider.com/election-trump-harris-economy-inflation-stock-market-volatility-risk-orlik-2024-10">Trump could always back away from tariffs</a> if the market reacted poorly to his proposals. Besides, Wall Street is far from frightened right now.Sean Gallagher, the global head of Lazard's small-cap equity platform, made a similar point in a recent interview with Business Insider when asked about Trump's tariffs and Kelly's stance."Often with Trump, the rhetoric and reality are not the same," Gallagher said. He added: "I don't know if all this rhetoric is going to match what's going to actually happen."The small-cap maven described himself as a free-market aficionado who's generally opposed to tariffs, including the ones that Trump outlined during his campaign. He said he'd prefer to avoid them, and he ventured that most Americans probably feel the same way.Ultimately, Gallagher thinks there will be some tariffs, though they may be more tempered than what Trump has floated. Inflation is a key reason Trump won, and he shouldn't forget that."We have to think about all the knock-on effects of tariffs, and his economic team will have to think about that as well," Gallagher said. "Trump's going to have to be, rightly, concerned about inflation. He's been talking about it too, how inflation's been a problem."Gallagher concluded: "We don't want to reignite inflation. I don't think anybody's for that."

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