It has been a tumultuous month since U.S. President Trump’s self-dubbed “Liberation Day” on 2 April 2025.  Dow, S&P and stock markets globally have first crashed and entered correction and even bear market territories, then rebounded after a last-gasped U-turn or pause on reciprocal tariffs by Trump’s administration.  But is the worst behind us now?

First, let me state categorically I am no analyst, economist or politician, nor do I profess to know exactly what’s going to happen next.  This is more an opinion piece.  We are just independent observers on macro events shaping the world which will have direct implications on our work as mortgage advisors.  As inherent in our job is the ability to decipher the most probable path of the interest cycle.

Incidentally, that’s not just for us but like it or not, everyone will have to stake a view on how mortgage rates will move next, be it upwards, downwards or sideways.  That will determine if you should stay on fixed or go to floating rates and how long you should stay committed to a lock-in period.  Inaction, or not deciding and having a view, is in itself a decision which will cost you thousands of dollars, as many have discovered over the last few years.  There’s no escape, so long as you have a mortgage which runs out of lock-in when interest gets reset to a much higher “thereafter” rate.

With that, let’s come back to the topic of whether Fed will be too slow to respond in 2025.  Fed has been largely criticized for being too slow to hike rates back in 2021 when money supply M2 exploded as a result of massive fiscal stimulus in response to Covid-19 pandemic, yet Fed believed inflation would be “transitory” due to one-off supply chain disruptions.  That word “transitory” has since become a stigma for the Fed.

Fast forward four years later, we may yet have another global crisis facing us with reordering of global trade in 2025.  If things deteriorate further to the extent of a full-blown global recession resulting in massive layoffs, Fed might run the risk of being blamed for a second time for acting too slowly.  This time too slow to cut rates.

We all know why Fed is between a rock and a hard place right now.  Prices for most items in the U.S. will likely move up due to the tariffs imposed.  Economists and analysts are largely in line on the inflationary effects of tariffs which is essentially a tax on consumers.  Yet, how much of that tax is borne by consumers, wholesalers, and all the participants in the supply chain down to the producers or manufacturers overseas remain to be seen.

Honestly, it’s hard to wrap my head around the concept of stagflation which is not your usual combination as inflation tends to sort itself out in event of negative growth or a recession.  When economic growth slows as consumers and businesses pull back on spending and investments, typically you would expect price increases to slow and eventually for prices to fall.  If things get so bad, businesses will bear the brunt of the demand contraction as nobody will be buying (where substitutes are available) and they will start to lay off workers in order to survive.  If the layoffs become massive, it sets off a whole downward spiral as consumers pull back even further and demand collapses while inventories rise.

Stagflation has largely been rare events in history which happened only a few times like during the oil shocks in 1970s and supply shocks like what we’d seen in recent years during the pandemic.  It’s a phenomenon more frequently observed in third world economies where high prices co-exist with slow growth.

In modern times, we are more familiar with the usual interplay between the stock market, the economy and the property market, where stock market action precedes the economy by about six months, which in turn is the precursor to eventual movement in property prices six more months down the road.

It remains to be seen if such cycles will play out in the same way like before, or we will enter a new stagflation phase which the world has never seen or understood for most parts.  A lot depends on whether businesses will start to fail in droves with unemployment going through the roof in the second half of the year or by 2026.  It may not come to that.  But surely, if that happens, asset prices will fall across the board as people start to liquidate holdings.

No one has the crystal ball.  However, if Fed is indeed behind the curve once again after relying too heavily on backward-looking data and acting too slowly to circumvent a recession, it will be interesting to contrast the slow response in both occasions in 2021 (rate hikes) and in 2025 (rate cuts).  Much debate will then center on how much is too much of “data-dependence” and allowing for “long and variable lags” in monetary policy.

For a view on how SORA here in Singapore will move in tandem with the most probable path of the Fed funds rate, speak to our team of mortgage strategists today.

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Disclaimer: MortgageWise Pte Ltd is not in the business of providing financial advice nor are we licensed or regulated by MAS under the Financial Advisory Act (FAA) in Singapore. All information presented are opinions and any representations given, whether by way of example, illustration or otherwise, are purely portfolio allocation advice and not recommendations or inducements to buy, sell or hold any particular investment product or class of investment product.  All opinions are generic in nature and are not tailored to the particular circumstances of any reader.  Seek advice from a qualified financial advisor before making any investment decision.

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