Why the RBA will hold off on a rate cut ahead of Trump's day of reckoning

At least he had enough sense to hold off until April 2 and call it Liberation Day, thereby avoiding any mention of fools.

On Wednesday, US President Donald Trump's Treasury Secretary Scott Bessant will finally unleash his long-awaited global tariff war — that is, if he doesn't change his mind.

The haphazard and irresolute messaging on the issue from the White House, the lack of open consultation and negotiation and the constant shifts in position have created chaos on the world's financial markets. And none more so than in New York.

Wall Street has taken a hiding in five of the past six weeks, as investors brace for the fallout from Trump's sudden reversal on half a century of global trade policy, an adventure largely led by America.

Panic selling gripped investors again on Friday, sending New York's main index plunging another 2 per cent, with the wave coursing across the Pacific on Monday as Australian and Asian stocks tumbled.

Global bond markets, meanwhile, can't decide whether the end result of the proposed trade war will be rampant inflation or a tanking global economy.

Or, as data on Friday night appeared to indicate, a combination of the two, a condition often dubbed "stagflation" — a portmanteau of stagnation and inflation — with runaway prices and recession.

The Trump administration's tariff plan so far has been an own goal of monumental proportions.

The market pummelling has already spilt over into the real economy with consumer confidence at two-year lows and businesses rapidly downgrading earnings forecasts.

At risk is the health of the global economy, an issue the newly elected president seems impervious to, convinced that ultimately this is a policy that will enrich America and force global manufacturers to flock back to the US.

Amidst all this, the Reserve Bank of Australia board, having only just altered course to loosen monetary policy, will today grapple with the thorny issue of whether to take pre-emptive action with another rate cut, or hold fast until the details become clearer.

While there is always the possibility another rate cut is in the offing, it is more likely to sit tight.

The RBA's waiting game

When Michele Bullock pulled the rate cut lever at the last RBA meeting, there was an air of incredulous disbelief among a large section of the media contingent at the press conference.

For more than a year, many had been openly calling for higher interest rates, which — given our variable-rate mortgages make Australian households far more sensitive to rate movements — would have tanked the economy.

Bullock went to great lengths to explain the decision to cut had not been easy and that the board was split.

She went on to stridently reinforce the point that this rate-cutting cycle would be gradual and that markets shouldn't get ahead of themselves in anticipating any more than two cuts this year.

Those arguments may have shifted in the past six weeks to justify another cut in the near future. But probably not enough to warrant another so quickly after February's decision.

For a start, the GDP numbers released since then showed an economy that was starting to bounce back with a better-than-expected 1.3 per cent growth in the year to December.

More importantly, per capita GDP returned to growth after seven successive quarters of contraction.

On the other side of the ledger, the most recent jobs numbers were weaker than expected, while the monthly inflation figures showed further encouraging signs that consumer price rises were continuing to slow.

And then there is the uncertain global outlook, which appears to be worsening by the day.

If, however, we've learnt anything about the RBA, it is that it does not act on impulse.

It is more likely to wait for the quarterly inflation numbers due out in a few weeks' time, and for some clarity around what, if any, tariffs are levied against Australia, our trading partners and the potential impact.

If there is to be a cut, May is the more likely option.

US may already be in recession

The market unease turned to fear on Friday night after the US Federal Reserve of Atlanta's latest data suggested America could be in recession.

As if that wasn't enough, inflation expectations suddenly have soared, striking fear into the heart of global investors.

The normally placid UK investment bank Barclays issued a note this week that said "we expect global [and US] growth to slow considerably from 2024 levels".

It also warned that China's situation was deteriorating and that it was vulnerable to America's tariff attacks, a situation that doesn't bode well for Australia.

"The situation facing Chinese households has worsened amid a deteriorating labour market and significant debt service burdens," it said.

Unlike the rest of the world, China is in a deflationary spiral, which is killing household spending.

A trade war, Barclays argues, would make that situation even worse.

Ironically, there has been a winner out of all the uncertainty and market ructions of late.

Gold prices have boomed to record levels. But European stock markets have been on a roll too.

The European Union's decision to rearm itself, along with Germany's plans to boost spending, has seen its economic prospects lift, the currency gain strength and its stock markets climb as investors offload overpriced American technology stocks.

What if Trump is right and America does rebuild?

According to the White House, "manufacturing is roaring back under US President Donald J Trump".

The renaissance, however, got underway under the previous administration after Joe Biden's Inflation Reduction Act splashed vast oceans of cash at green energy and critical minerals, in a bid to create new industries.

That's now been repealed and the plan is to bring old-style manufacturing back to the US, like before it up-stumped and headed to China, by simply making imports more expensive.

Large corporations, however, aren't that nimble — they're more likely to wear the pain of tariffs if they believe the policy may change again down the track.

After investing billions of dollars in global networks, most would be willing to just sit tight for a few years at least.

At best, they may make token gestures to give the appearance they are shifting operations back to the US unless the president finds a way to remain beyond his current term.

But there are other, much more fundamental, issues. The world has changed since American, European and Australian firms shifted their manufacturing to China.

A returning firm is more likely to build a high-tech operation utilising robotics and using only a fraction of the staff it once employed.

Trump's tech bros are in a race to achieve far more than that, with huge research spending on artificial intelligence in a bid to minimise and even discard workers.

Even on that front, they are being undercut by Chinese tech outfits like DeepSeek.

As Barclays put it this week, Trump's Liberation Day could well become the day of reckoning.