Consumers are 'really worried' about tariff-driven inflation, says Bleakley’s Peter Boockvar

Key Concepts:

• U.S. credit rating downgrade (Moody's from AAA to AA1)
• Impact of tariffs on consumer sentiment and inflation
• Retailer's (Walmart) ability to absorb price increases
• Potential shift in focus from tariffs to tax cuts and deregulation
• Effect of tariffs on corporate income tax and the economy

U.S. Credit Rating Downgrade

• Moody's downgraded the U.S. credit rating to AA1 from AAA, following similar actions by S&P (14 years prior) and Fitch.
• The outlook is stable.
• The downgrade is symbolic, highlighting concerns about U.S. debt and deficits.
• Treasuries are facing less foreign demand and a growing debt pile.
• A spike in the ten-year yield would be more impactful than the downgrade itself.

Consumer Sentiment and Tariffs

• Consumer sentiment data is weak, indicating concerns about the inflationary impact of tariffs.
• Consumers, especially lower to middle-income, are worried about rising costs of living.
• Walmart is acknowledging the need to absorb price increases from vendors due to tariffs.
• The extent to which prices will rise varies across products.
• Retailers' upcoming reports will reveal how much they plan to pass on tariff costs to consumers.
• Tariffs will impact the supply chain, affecting various stakeholders.

Impact of Tariffs on Corporate Income Tax

• Even in the best-case scenario (10% tariffs on top of existing 2.5%), tariff rates would be the highest since the early 1940s.
• A 10% tariff on $3.3 trillion of U.S. goods imports equates to approximately $330 billion in taxes on U.S. companies.
• U.S. corporate income tax receipts are about $525 billion.
• The 10% tariff effectively raises the corporate income tax rate to 34%.

Potential Shift in Focus

• There is hope for a shift in focus from tariffs to positive economic factors like tax cuts and deregulation.
• The potential for these factors to improve consumer sentiment and the economy is acknowledged.

Conclusion

The U.S. credit rating downgrade by Moody's serves as a symbolic warning about the country's debt situation. More significantly, consumer sentiment is being negatively impacted by concerns over tariffs and inflation. Even a "best-case" scenario for tariffs could have a substantial impact on corporate income tax and the overall economy. A potential shift in focus towards positive economic factors like tax cuts and deregulation could help improve the situation.