- U.S. Tariffs Increase, Average Tax Rate Significantly Rises The Trump administration announced a 10% baseline tariff and additional tariffs on major trading partners based on trade deficits, pushing the effective U.S. tariff rate to between 16% and 22%, far exceeding the initial forecast of 8% to 9% at the beginning of the year, with China's import tariff potentially reaching 54%. - Downward Pressure on Economic Growth If the tariff policy persists, it will substantially drag down U.S. economic growth, leading Morgan Stanley to cancel its original plan for a rate cut in June. The risk of a growth downturn is expected to rise, especially with significant inflation shocks in the next 3-6 months. - Adjustment of Inflation Expectations, Rate Path Delayed Due to tariffs potentially driving up commodity prices, Morgan Stanley has postponed its expectation for rate cuts in 2025 to March 2026, maintaining a terminal rate target range of 2.50%-2.75%. It believes the Federal Reserve will find it difficult to "ignore" the inflation pulse brought about by tariffs in the short term. - Increased Uncertainty in Fiscal and Trade Policies Current tariff levels are the highest in nearly a century. The report states that this tariff adjustment represents the most structurally significant policy shift since the U.S. dollar abandoned the gold standard, putting pressure on consumer confidence and asset prices. - Analysis of U.S. Treasury Market and Currency Market Reactions After the initial tariff announcement, U.S. Treasury yields briefly rose but quickly fell after detailed tariff charts were disclosed. The yields on 7-year and 10-year U.S. Treasuries dropped by about 10 basis points. Morgan Stanley still recommends positioning for a decline in U.S. Treasury yields and an appreciation of the yen. - Currency Market Enters "Defensive Mode" Since mid-February, the currency market has entered a "defensive trading" framework, with safe-haven currencies like the yen strengthening, while emerging market currencies and commodity currencies (including CNH and AUD) are under pressure. Morgan Stanley recommends continuing to go long on the yen.