Cold Rolled Tariffs
Amid the many tariffs proposals, discussions, pauses, and negotiations, the tariffs on imported steel and aluminum have been set at the 50% level. I am openly wondering what the effect will be on the many infrastructure projects underway and proposed. I recall that BATA rebuilt the Oakland Bay Bridge with imported steel that was barged into the site. I started to ponder the implications for the rebuilding of the Francis Scott Key bridge in Maryland. The estimated cost to date is $1.9 billion to be paid by the federal government. But I could not determine whether that estimate included domestically produced steel or imported steel. The project budget clearly will be sensitive to that detail. But there are many other projects out there that may be potentially affected by the tariff increase.
Speaking of Maryland and the region including the District of Columbia the municipal market has demonstrated once again that either rating implications are not as dire or the market is very forgiving. Recent transactions have been well received in both cases. The context is in a market with very heavy municipal supply. Some $23 billion on the forward calendar is a recent high mark. Perhaps, levels will rise and spreads will widen when there is a change in the Treasury market. The ten year Treasury continues to trade in a band somewhat below the 4.50% level and is presently at 4.44%.
What would change the path for rates is whether or not the Fed takes any action next week. It is hard to see why the Fed would take any action at this time despite the cajoling of the President. Recent inflation readings remain relatively tame despite the fears of the effects of the tariffs. Of course, the full weight of the tariffs have not been fully factored in at this point due to the pause. We continue to believe that the Fed will hold off until more is known about the fiscal policies going forward.
The July 9 date looms large. We have one tariff agreement with the UK and progress has finally improved with the all important China relationship. Perhaps, toys will be available for the holidays after all. Important chips for rare earth materials appear to be the crux of the matter. And yet, we await progress with many other of our important trading partners.
The other critical date upcoming is July 4 and not just for the holiday aspects. The Republican goal is to have the federal budget completed by then. Much commentary has been provided about the probable effects on Medicaid and on other spending categories. What has been openly lamented by many is that the deficit will not budge much and trillions will be added to the debt profile. It is far from certain that these important opinions would be significant enough to deter passage. Simply put, more changes are anticipated before the reconciliation process has been completed.
It was reassuring to see the MSRB retaining the 15 minute trade reporting rule. We continue to maintain that the municipal market is still quite different from other markets. Until we become even more standardized and digitized, a one minute standard would be difficult to attain. But, I will leave more of this commentary to the ticket writers.
The recent events in Los Angeles have us pondering once again the matter of states rights on many levels. The Founders were very focused on not having a central government that would overrule the states in most instances. It appears that some of the fundamental principles of this tenet are being reconsidered in the current environment.
Many of the policies that were established in the Great Society and before are now being reexamined in light of budgetary exigencies. These policies were put into place in order to raise societal standards and improve the quality of life for society at large. We sincerely hope that an aggravated level of class disturbances may be avoided. Tying the hands of the states in dealing with these issues as the federal level backs away will be problematic in the end.
John Hallacy
John Hallacy Consulting LLC
06/11/25
Recent Comments