The latest data sent markets into a brief celebration, but Dr Komal Sri-Kumar is here to offer a sobering counterpoint: the inflation fight is far from over, and trade euphoria may be premature.
This past week, the US and China reached a temporary truce in Geneva, rolling back tariffs from 125% to 10% on each other’s goods. On paper, the détente looks like progress. Markets responded enthusiastically, interpreting the move as the first signs of a permanent thaw. But Sri-Kumar urges caution: “Despite the improvement in the short-term outlook… it is not Hallelujah time yet on the trade front.”
Even as tariffs have dropped from their April 2 “Liberation Day” highs, they remain well above pre-conflict levels. According to Sri-Kumar, the Producer Price Index decline last month—seen by some as evidence of softening inflation—may be deceptive. “The unexpected decline in the PPI appears to be a consequence of wholesalers cutting margins rather than increase prices,” he writes. “Reducing margins may not be a permanent solution.”
That view is gaining traction. Walmart CFO John David Rainey said on Thursday the retail giant is struggling to absorb rising import costs. He expects price hikes on shelves by late May, worsening through June. Meanwhile, a University of Michigan consumer survey revealed that inflation expectations for the next year have jumped sharply—from 6.5% in April to 7.3% in May. “Uncertainty over trade policy continues to dominate consumers’ thinking about the economy,” said survey director Joanne Hsu.
This divergence between short-term optimism and structural pressure, Sri-Kumar argues, is precisely where the risk lies. “The higher tariffs are likely to be passed on to consumers… before too long.” The 90-day truce may soon look like a pause, not a pivot.
And while attention has fixated on China, another front is brewing. The European Union, which exported more to the United States than China in 2024, has only just begun talks following threats of retaliatory tariffs. The outcome of that negotiation, Sri-Kumar notes, will be crucial to watch.
Meanwhile, Federal Reserve Chair Jerome Powell delivered what Sri-Kumar calls a lacklustre speech on Thursday, revisiting the post-2008 inflation undershoot. Powell explained that the Fed had adopted a strategy to compensate for persistent shortfalls from its inflation target, but Sri-Kumar wasn’t impressed: “CYA would be the polite appraisal of the Chairman’s self-evaluation.”
That policy framework, he argues, is no longer fit for purpose. “Was [Powell] not aware,” he asks, “that the surge in government spending in the first Trump and Biden administrations in reaction to covid meant that it would have been counterproductive for the Fed to also join the party in a big way by lowering interest rates to zero and doubling the central bank’s balance sheet?”
The Fed’s delayed response to inflation in 2020–2021 is now being replayed in reverse, with policy swinging between panic and restraint. Powell’s latest warning about “persistent supply shocks” was met by Sri-Kumar with a firm suggestion: “If Powell wants to combat uncertainty… a rules-based monetary policy would be a better option.” The current system, with abrupt shifts such as the 50-basis-point rate cut in September 2024 followed by a warning on inflation last week, only feeds volatility. “These switches,” he writes, “can, by themselves, perpetuate inflation.”
Sri-Kumar has consistently argued for consistency. Since the launch of his SriKonomics bulletin in December 2020, he has criticised the Fed’s expansionary bent and warned of inflationary risk. Now, even as the numbers soften, he sees danger in misreading the signal.
The Fed might want to claim victory. Markets might want to believe in a permanent trade fix. But Sri-Kumar is clear: both assumptions are premature. With tariffs still biting and inflation expectations ticking up, the second half of the year may prove far more turbulent than this brief calm suggests.
Dr Komal Sri-Kumar is President of Sri-Kumar Global Strategies, which advises multinational investors and sovereign wealth funds on global risk and opportunity. He is a regular contributor to business media and an established voice in global economic forums.
Disclaimer: This article quotes views expressed by Dr Komal Sri-Kumar in his weekly commentary. These are his personal opinions and not financial advice. Always consult a qualified adviser before making investment decisions.
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