Weekly Economic Report 4.11.25

In the extraordinary financial volatility that is taking place as the second Trump administration puts its stamp on global trade and the US budget, red lines – and the lack of red lines -- is becoming clearer. The most obvious result is that the decoupling of the US and Chinese economies is at full throttle. That is an unambiguously stagflationary force, given how intricately interwoven Sino-US supply chains are now. The second is that there will be no budget restraint from Congress as Trump shifts the US from income taxes to tariffs. Sustained budget deficits are replacing easy monetary policy as the offset to economic weakness. The combination calls for higher long term US interest rates – both due to greater inflation risks and the higher real rates needed to call out capital to rebuild global supply chains, as well as funding for a worldwide defense build-up. Thus, the ten-year note has broken above 4.5%, a level not sustained since before the Great Financial Crisis, and the DXY dollar index has slumped below 1.00 for the first time in three years, 10% below its 2025 peak.

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