By Michael O’Neill

Thirty years ago, “Houston, we have a problem” became the ultimate catchphrase for crisis management, cemented in pop culture by the movie Apollo 13. The film depicts three NASA astronauts calmly going about their mission—until a flipped switch turns routine into chaos. That’s when Tom Hanks’ character delivers the now-iconic line.

Fed Chair Jerome Powell must have had those very words in mind when he released the March 19 FOMC statement. The Fed left interest rates unchanged, described the economy as expanding at a solid pace, and noted stable unemployment and a solid labor market. The Summary of Economic Projections (SEP) still calls for two rate cuts in 2025. So far, so good.

Then he said, “America—we have a problem.” (That’s not true, but that is what the statement and SEP imply). For starters, the projections suggest Core PCE will rise to 2.8% from 2.5% projected in December, while economic growth slows to 1.7% (December forecast 2.1%). However, the 800 lb. gorilla in the room was Trump’s tariffs, which weren’t referred to by name but by “increased uncertainty in the economic outlook.”

Did the Fed dodge the tariff issue to avoid provoking Trump? So much for an “independent Fed.”

When Powell was asked how tariffs factored into the inflation forecast, he tap-danced around it like a prima ballerina. He admitted tariffs contributed to higher prices but claimed the Fed couldn’t determine whether the impact would be transitory or lasting. Translation: We know tariffs are a problem, but we’re not touching that political grenade.

The March 19 FOMC statement has something for both hawks and doves. The doves will point out that rate cuts are on the table, while the hawks will counter that inflation is still above target and forecast to rise.

Geopolitics Gone Wild

The Three Amigos—Trump, Putin, and Jinping—are stoking geopolitical uncertainty around the world, and markets are not impressed.

Donald Trump, never one for diplomatic subtlety, has threatened Iran with consequences if its proxy, the Houthis, keeps harassing Red Sea shipping. That’s code for potential U.S. military action, which means another layer of uncertainty for oil markets and global trade.

Meanwhile, China seems determined to provoke just about everyone in its backyard. Beijing’s South China Sea ambitions have rattled South Korea, with tensions flaring over a steel structure dispute. The Philippines is also feeling the heat as Chinese vessels play bumper boats near disputed reefs. Taiwan? The leaders there are stocking up on Depends after Trump appeared to ditch U.S. participation in NATO.

Germany is planning on militarizing, which, any historian will tell you, didn’t work out well for the world in the first half of the 20th century.

President Trump attempted to broker a ceasefire in Ukraine and managed to secure a promise to halt strikes on energy infrastructure. Ukraine’s Zelensky reluctantly agreed in order to continue receiving U.S. military aid. People will keep dying, but the lights will still work.

What does all this mean for markets? Risk-off mode is firmly engaged, and that’s a green light for U.S. dollar strength. Investors are dumping riskier assets and flocking to the world’s favorite safe-haven currency. Treasury yields may wobble, but as long as uncertainty reigns, the greenback stays bid.

April’s Fool

On April 2, Donald Trump plans to impose reciprocal tariffs on every country exporting to the U.S., and it is still unclear if the reciprocal tariffs are over and above the tariffs he has already announced. Mr. Trump says his tariffs are a way to make foreigners pay to access the American consumer. American consumers know differently—or will soon discover that the tariffs are a tax on them.

Loonie on the Defensive

The ambivalent FOMC decision combined with the Bank of Canada’s admission that tariffs create a cloud of uncertainty around the economic outlook suggests USDCAD is destined to remain in a 1.4100-1.4500 range for the near future. The BoC sounded dovish, blaming U.S. tariff drama for rattling business confidence and consumer spending while downplaying inflation risks. Meanwhile, the Fed plans to stick with its higher-for-longer interest rate stance.

That will limit USDCAD downside in the near term, but with two Fed rate cuts still projected, USDCAD gains may be limited.