Musalem noted Congress has acknowledged the importance of central bank independence, though he doubted their valuation of certain elements like tariff-setting. He anticipated that the effects of tariffs on inflation would endure for 2-3 quarters.<\/p>\n
He suggested many economists might not be considering the renegotiation of the USMCA, scheduled to commence in mid-2026 and proceed until year-end. As 28% of US imports originate from that region, escalating tariff rates could induce another wave of inflation, resembling ‘persistent’ inflation instead of a single event.<\/p>\n
We are seeing a signal that inflation might be stickier than many believe due to tariffs. The expected impact over the next two to three quarters suggests the Federal Reserve may have to delay any planned rate cuts. This challenges the market’s recent dovish tilt.<\/p>\n
This view gains credibility when we look at the latest inflation data from August 2025, which showed core CPI ticking up unexpectedly to 3.8%. Looking back, we know that total U.S. trade with Mexico and Canada surpassed $1.5 trillion in 2023, underscoring how significant this trade bloc is. Even a small increase in tariffs on the 28% of U.S. imports coming from this region would have a noticeable effect on prices.<\/p>\n
In the coming weeks, a practical response is to adjust positions in interest rate derivatives. We could consider reducing expectations for early 2026 rate cuts by selling SOFR futures contracts for March and June 2026 delivery. This would be profitable if the Fed is forced to keep rates higher for longer than the market currently anticipates.<\/p>\n
We should also start pricing in the longer-term risk from the USMCA renegotiation scheduled for mid-2026. One way to position for this is by buying longer-dated options on interest rate futures, which would benefit from the rising uncertainty and inflation fears. This “second round” of inflation risk seems underappreciated by the broader market at this moment.<\/p>\n
The currency market offers another avenue, particularly concerning the USMCA region itself. If the United States faces persistent inflation while its neighbors do not, it could lead to a stronger U.S. dollar. We might look at long positions in USD\/MXN or USD\/CAD call options expiring in mid-2026 to capitalize on potential negotiation turmoil.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Tariff impacts may linger, economists overlook USMCA renegotiation, risking another wave of persistent inflation.<\/p>\n","protected":false},"author":62,"featured_media":17022,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-31202","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/31202","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=31202"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/31202\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17022"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=31202"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=31202"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=31202"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}