Do Tariffs Increase Inflation? Why Rising Macro Pressure Aligns with Cycle Tops
- May 7
- 6 min read
The Federal Reserve is set to release its rate decision today, and for most of the financial media, that’s the headline. But for disciplined traders watching structure, the real story is the collision of macro pressure and cycle timing.
Rising inflation expectations, aggressive new tariff packages, and a projected intermediate market top are all converging at the same time. That convergence — not the rate decision itself — is what traders should be focused on.
So, do tariffs increase inflation?
Absolutely. Historically and practically, tariffs act as indirect taxes on businesses and consumers. They raise input costs, distort supply chains, and pressure margins. And in the current environment, they’re adding fuel to a market already showing signs of exhaustion.
Let’s unpack how rising macro stress — led by a sharp jump in tariffs — is feeding into today’s cycle timing and creating structural risk for the weeks ahead.
How Tariffs Are Inflating Pressure Again
President Trump’s latest tariff announcement hit markets like a policy shock:
145% tariffs on Chinese imports
10% flat tariffs on nearly all other imports
These moves push U.S. trade barriers to their highest levels since 1909. And while they may be politically motivated, their impact is very real for markets.
Tariffs increase the cost of imported goods, and when companies absorb those costs or pass them on to consumers, the ripple effect is felt quickly. These rising costs aren't isolated. They accumulate across the supply chain and bleed into producer and consumer price indexes.
Why it matters:
Businesses are already warning of higher prices due to supply chain stress and rising raw material costs
The Fed just raised its year-end core inflation forecast to 2.7%, citing tariff-related impacts
Consumer inflation expectations — according to the latest University of Michigan survey — jumped to 6.5%, the highest since 2008
This inflation spike doesn’t come from wage increases or consumer strength — it comes from policy-driven distortion, and that type of inflation tends to be more destabilizing. That’s what makes today’s environment so sensitive.
What the Visualizer Cycles Are Showing Now
Our Visualizer forecast models have been signaling a structural turning point — not based on news, but on price behavior and time-based patterns.
On the SPY, the cycle composite shows a clear top projected on May 9
On the QQQ, the top was set on May 7, with weakness expected to carry through the end of the month
Short-term cycles are already rolling over, even before the Fed meeting
This alignment — macro pressure rising as structural price momentum begins to fade — is a classic signal of a cycle top. These conditions don’t always lead to instant reversals, but they make sustained upside far less likely.
Even without a rate hike, the combination of policy stress and tired cycles reduces the odds of follow-through rallies. Instead, traders should prepare for more volatility and a likely pivot to defensive positioning in the coming sessions.
The Real Problem With Chasing Longs Into Macro Stress
Late-stage rallies often look strongest right before they break. That’s why so many traders get caught buying the top. They’re chasing price strength without recognizing that the underlying structure is already breaking down.
When inflation pressure rises and cycles peak:
Price may hold, but breadth often weakens.
Stops under crossover averages get triggered — just like the 2/3 average did on Tuesday.
Volatility spikes, especially around major events like today’s Fed announcement.
Chasing strength at this stage is an emotional trade. It’s not based on confirmation or structure. That’s exactly the trap Steve warns about: momentum without structure is a setup for reversal.
Rather than hope for continuation, disciplined traders begin reducing size, raising stops, and identifying areas of structural failure that could serve as short setups once confirmed.
This approach mirrors what we’ve seen in previous topping cycles — where markets appear strong until they’re not. Recognizing that turning point early is what separates tactical traders from reactive ones.
Check our post on Trading with Historical Market Cycles: Avoiding Late-Stage Longs as Momentum Peaks for more info.
Why We Don’t Short — Yet
Although cycle momentum is weakening, structure has not fully broken down — and that distinction is critical.
The 3/5 crossover average is still intact — but vulnerable.
Short-term volume is contracting, but not collapsing.
The SPY 5-day price channel hasn’t been violated yet.
These components serve as the final line of defense. Until they break, the intermediate uptrend — though weakened — still holds. That’s why Steve doesn’t short “potential” tops. He waits for confirmation.
If Powell’s tone turns hawkish and the market responds with selling pressure, we’ll be watching for volume confirmation, channel violations, and crossover breaks before acting. If we don’t get those, we stay patient.
In other words, the market has to prove the reversal — we don’t anticipate it.
What Traders Are Asking About Tariffs and Inflation
Do tariffs increase inflation in every environment?
Not always — but in tight supply chain conditions, like we’re facing now, the answer is a strong yes. Tariffs act like taxes and reduce efficiency in trade. The added cost filters through the economy quickly.
Right now, supply chains are fragile, inventories are lean, and companies are sensitive to pricing pressure. That’s a perfect environment for tariffs to create real inflation quickly.
Why does inflation from tariffs matter for cycle timing?
Because macro pressure can accelerate the end of a cycle. When sentiment shifts fast and cost structures rise, the window for distribution (institutional selling) opens. That often aligns with or slightly precedes projected tops.
The pressure from tariffs isn’t just economic — it affects capital flows, hedging behavior, and institutional allocation models. That’s what makes it important within Steve’s structure-based framework.
How does this affect Fed policy?
If Powell sees inflation rising again due to tariffs — even while GDP growth slows — he’s less likely to cut rates. That “hawkish pause” can spook markets, especially if employment remains steady.
A Fed that’s forced to maintain high rates despite cooling growth adds uncertainty to the outlook. Traders who rely on stimulus assumptions will need to reassess quickly if Powell’s tone reflects that risk.
What would confirm a top structurally?
Violation of the 3/5 crossover average
Breakdown below the 5-day price channel
Negative divergence in breadth and volume
These confirmation signals take theory and turn it into action. Without them, the top remains theoretical. With them, tactical short setups become viable.
Is this a crash setup?
No — not yet. This is a cycle rotation. The projected low is late May, which implies a controlled correction, not a collapse. But for tactical traders, that’s an opportunity window.
With elevated inflation expectations, tight structure, and an exhausted rally, volatility will likely expand. That creates opportunity — not panic.
Resolution to the Problem
There’s nothing new about tariffs or inflation. But when these forces show up together in a narrow cycle window, they matter a lot more.
Today’s decision isn’t about whether Powell raises or pauses. It’s about how the market reacts — and how that reaction fits inside a cycle that’s already tired.
At Market Turning Points, we track that interaction in real time. When price breaks structure, that’s our confirmation. Not before.
Join Market Turning Points
If you’re tired of guessing the Fed’s next move or trying to trade inflation headlines, there’s a better way. Market Turning Points offers:
Real-time cycle forecasts
Tactical guidance on entry/exit zones
Visualizer tools to confirm price structure
Learn how to stay one step ahead of the reaction — and stop trading noise.
Conclusion
So, do tariffs increase inflation? Yes — and in today’s market, they’re doing it fast.
But the real concern isn’t inflation itself. It’s what inflation does to the market’s structure — especially when that structure is already stretched.
With macro pressure rising and cycles peaking, the next 48 hours may mark a turning point. Stay light, stay tactical, and most of all — stay focused on confirmation.
That’s how you survive the volatility.
That’s how you trade the cycle — not the headlines.
Author, Steve Swanson
