This Week in Review | Government Shutdown, Tariff Ruling, UK Inflation

Transcript

Hello and welcome to This Week in Review. This weekly segment is designed to highlight a few important developments you may have missed this week, what they mean for markets, and most importantly, the potential impact for investors. To stay up to date with our latest market insights, subscribe to our YouTube channel or visit FisherInvestments.com. Now let's review what happened this week.

First, an update on the government shutdown and US GDP. The US federal government shutdown is back in headlines. Congress has already passed nearly all spending bills, but the final budget pieces hit a roadblock this week over funding for the Department of Homeland Security. The Senate passed a funding agreement ahead of Friday's deadline, but the House hasn't reached a deal. This sets up a funding lapse. But here's what really matters, the government doesn't drive the American economy. The private sector does. Despite headlines about slowing US GDP in the fourth quarter, past US government shutdowns did not derail the economy. And as we noted in our recent MarketMinder article, federal closures tend to grab attention. But their overall impact on the economy is limited. Today's initial Q4 2025 US GDP report showed a sharp slowdown from Q3, as reduced government spending did indeed detract. However, GDP was still positive. Consumers continued spending. Most importantly, none of this derailed stocks, which continued hitting new all time highs through Q4.

For perspective, the federal government accounted for only about 3% of GDP on a value added basis. That's far less than the private industry's at nearly 90%, with the remainder made up by state and local governments. Since the shutdown just happened last year and stocks took it in stride, a short funding gap or partial shutdown is unlikely to spook markets.

Next, the US Supreme Court ruling. The US Supreme Court is back in the spotlight this week as it returns from its winter recess. In its first ruling of the session, the court, in a 6 to 3 decision, struck down the majority of President Trump's tariffs. Writing for the majority, Chief Justice Roberts wrote that such sweeping tariffs require congressional authorization. And as a reminder, last August, the US Court of Appeals for the Federal Circuit upheld a lower court ruling that found President Trump's tariffs exceeded his authority under the International Emergency Economic Powers Act, or IEEPA. The Trump administration argued that the IEEPA granted the president flexibility to regulate trade during emergencies, framing tariffs as regulatory tools rather than taxes. However, the courts have rejected this interpretation.

The ruling may cause recent trade deals to be renegotiated, and may mean that the government will need to refund tariffs. Hours after the decision, President Trump said that he would sign an executive order imposing a new 10% global tariff. According to the president, the new global tariff will come on top of the existing levies that remain intact following the High Court's decision.

Uncertainties remain, but markets have had months to mull the possibilities and, as we've said before, markets thrive on clarity. Today's ruling narrows the scope of possible outcomes from here, increasing the certainty that markets love.

Finally, UK's recent inflation data. On Wednesday, the UK released its Consumer Price index data, offering a snapshot of the current state of the economy. Inflation slowed to 3% in January, down from 3.4% in December, and landed in line with expectations. Inflation has been relatively stable, but concerns remain. Higher taxes in last April's national minimum wage increase could strain businesses, leading to layoffs or price hikes that could push inflation back up. But here's what's important to keep in mind, this idea oversimplifies what drives inflation. Businesses have lots of ways to adapt besides raising prices. They can cut costs, boost efficiency, rework supply chains and much more.

From our perspective, inflation happens when there's too much money chasing too few goods. Right now, the global money supply growth is subdued. Unless central banks make big policy shifts, we think inflation is unlikely to surge again.

And that's it for this week. Thanks for tuning in to This Week in Review. If you're looking for more insights, then don't miss our other series, Three Things You Need to Know This Week, released every Monday. You can also visit FisherInvestments.Com any time for our latest thoughts on markets. Thanks again for joining us and don't forget to hit Like and Subscribe!