Stocks dropped today as trade tensions escalated between the U.S. and China. China said it will raise tariffs on certain U.S. imports starting June 1. Investors and analysts believe that a failure in trade talks risks damaging the confidence among consumers and businesses, potentially hampering spending at a time when the U.S. economic growth is already widely expected to slow.
Bond prices are slightly up and the 10-year treasury is yielding 2.42%. Now, with China ready to retaliate, higher U.S. tariffs will drive up the Feds preferred measure of underlying inflation, and further escalation could raise consumer prices even more, which would stunt U.S. growth. Later today, U.S. officials are expected to announce details of their plan to impose a 25% additional tariffs on all remaining imports from China.