Team,
Based on the latest research coming out of the Fed districts, here are the key takeaways for our current positioning. Note that the Dallas publications were empty/non-substantive in this window, so we are focusing on the high-signal data from New York and St. Louis.
1. [NY] In What Ways Has U.S. Trade with China Changed?
The research indicates that despite aggressive shifts in trade policy, the overall U.S. trade deficit remains stubbornly resilient. This suggests that "trade diversion" (shifting imports to other nations) is offsetting "decoupling," meaning tariffs are not significantly reducing aggregate import dependency. For our outlook, this implies that trade policy is a blunt instrument for reducing deficits and may be more inflationary than it is structurally transformative.
2. [STL] The Dual Beveridge Curve
This analysis explores the evolving relationship between job vacancies and unemployment, suggesting a decoupling in how different types of labor market tightness operate. If the "Dual Curve" indicates that structural mismatches are increasing, the Fed may find that the "natural rate" of unemployment has shifted higher. This matters for our policy projections as it suggests the Fed may tolerate a higher nominal unemployment rate before considering further rate cuts.
Synthesis:
The current research suggests a macro environment where structural frictions—both in global trade and domestic labor markets—are resisting policy interventions. We should expect persistent inflationary pressures from trade diversion and a more complex, less predictable path toward a "soft landing" as the labor market stabilizes.
The analysis examines recent shifts in U.S.-China trade policy, noting that significant policy changes have had minimal impact on the overall trade balance. Despite volatility, the U.S. trade deficit remained stable while China's global trade surplus increased.
Over the past year, U.S. trade policy with China has undergone enormous changes, but with surprisingly little effect on overall trade balances. In fact, the U.S.’s twelve-month trade deficit, while highly volatile due to import front-running early in the year, ended 2025 at $1.2 trillion, almost unchanged from 2024. At the same time, China’s trade surplus with the world actually increased from $1 trillion to $1.2 trillion. However, when looking at changes between individual countries, one sees large shifts in bilateral balances. In this post, we will focus on changing trade flows between the U
The paper explores the Dual Beveridge Curve to analyze the relationship between job vacancies and unemployment. It likely examines how labor market frictions impact employment outcomes and wage dynamics.
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