The US equity market’s rally since 2 April, dubbed “Liberation Day,” has given investors a temporary breather, but Dr Komal Sri-Kumar is not convinced the worst is over. The president of Sri-Kumar Global Strategies points out that the upbeat sentiment following a thaw in US-China rhetoric, positive jobs data, and strong tech earnings may be premature. The real storm, he argues, has merely paused—not passed.
At the heart of his caution is the fragile trade truce with China. The 145% tariff slapped on Chinese goods remains a live wire. While some essential products, such as certain electronics and medicines, have been spared for now, Sri-Kumar says markets are reacting to relief, not resolution. “Negotiations appear to be at a stage where talks are about whether to have talks,” he notes. Trump claims Xi Jinping has reached out, yet his own Treasury Secretary, Scott Bessent, isn’t backing that version. China, meanwhile, issued a sharp statement accusing the US of “extortion and coercion.” For now, diplomacy remains theatrical.
Even though the Chinese economy is clearly under pressure, Sri-Kumar reminds readers that Xi doesn’t face re-election. Trump does. And that’s where the stakes start to shift.
On the domestic front, the US economy added 177,000 non-farm jobs in April—comfortably beating expectations. Equity markets and the 10-year Treasury yield climbed in response. But Sri-Kumar cautions that such headline numbers risk being misleading. Tariff impacts are slow-burning, and their full effect on inflation and employment will likely emerge in the latter half of the year.
That has not stopped Trump from weighing in—again—on what the Federal Reserve should do. “NO INFLATION, THE FED SHOULD LOWER ITS RATE!!!” he posted on Truth Social. But rate-setting is not a popularity contest, and Sri-Kumar anticipates no change when the Federal Open Market Committee meets next Wednesday. “Expect more fireworks next week,” he says.
Trump isn’t alone in his Fed commentary. Secretary Bessent suggested that the two-year Treasury yield falling below the Fed Funds rate is a sign that markets expect—and want—a rate cut. Sri-Kumar doesn’t buy it. “Despite his years of experience in the financial sector, Bessent is wrong,” he writes bluntly. That gap, he explains, isn’t a command—it’s a forecast. The market thinks the Fed will ease, not that it should. With inflation showing signs of climbing again, the expectation of a cut could itself be a warning that policy credibility is on the line.
At the centre of all this is Fed Chair Jerome Powell. “Will he follow the path laid out by Paul Volcker… or that of a predecessor, Arthur Burns, who let inflation get out of hand?” Sri-Kumar asks. That historical framing speaks volumes. Volcker was the architect of tough-love interest rate hikes that broke inflation in the early 1980s. Burns, by contrast, failed to act decisively, and inflation spiralled.
The implications are clear. If Powell bends to political pressure or the false comfort of one good jobs report, he risks repeating the mistakes of the past. “The level of the two-year yield… is merely a reflection of the collective belief of investors as to what the central bank is expected to do,” Sri-Kumar explains. That belief can easily become unanchored.
The broader picture remains murky. Even if market sentiment has shifted since early April, the foundational pressures—tariffs, inflation, political meddling in monetary policy—have not eased. Investors cheering the current rally may be celebrating a false dawn.
This article quotes views expressed by Dr Komal Sri-Kumar in his weekly newsletter Srikonomics
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