Jupiter Asset Management Sees Non-U.S. Bonds Outperforming as Tariff Costs Begin Shifting to Consumers

Where the Tariff Pain Is Landing Now

Since prior coverage this week documented the Fed's internal division over inflation's future path, a clearer picture of the transmission mechanism is emerging from the investment management side.

Ariel Bezalel and Harry Richards, investment managers at Jupiter Asset Management, argue that U.S. companies have absorbed part of the tariff cost so far, but that window is closing. Executive statements, they write, indicate consumers are set to carry a larger share of the burden going forward.

The timing matters. Bezalel and Richards see "clear signs of a slowdown in consumption, a weakening labor market, and problems in housing affordability" in the latest U.S. macroeconomic data.

That combination, they argue, makes the tariff regime's growth impact "moderately negative" and potentially enough to offset whatever boost Trump's One Big Beautiful Bill Act is supposed to deliver.

The Fed's Uncomfortable Position

Jupiter's managers expect gradual Fed easing, and say the rate cuts currently priced in by markets look realistic, particularly after recent downward revisions to non-farm payrolls.

But the path is not clean. If tariffs push consumer prices higher and more persistently than expected, the Fed could be forced to slow the pace of cuts. The post-COVID inflation surge, which caught most institutional forecasters flat-footed, is the explicit reference point here. Bezalel and Richards are NOT dismissing that risk.

The political pressure on the Fed complicates things further. Jupiter flags the "ongoing clash" with the central bank as raising genuine questions about its independence, a concern that adds another layer of uncertainty to U.S. rate policy regardless of where inflation lands.

The Strongest Counter-Argument

The case against Jupiter's cautious U.S. outlook deserves a fair hearing. The U.S. services sector remains dominant. AI and technology infrastructure investment is accelerating, and Jupiter's own managers acknowledge it could meaningfully lift growth and productivity. Equity markets remain strong, and the wealth effect from that is real.

Manufacturing and housing construction may stumble, but if services activity holds and the AI build-out continues at pace, a soft landing is still plausible. Jupiter concedes this: they call a recession "unlikely" and describe the negative growth impact as moderate, not catastrophic.

Non-U.S. Bonds: A Different Story

The divergence in central bank posture is where Jupiter's investment thesis gets concrete. The European Central Bank, the Reserve Bank of Australia, and the Reserve Bank of New Zealand have all eased policy, with inflation slowing to near or even below their respective targets and growth softening.

That combination—falling rates, low inflation, weaker growth—is historically favorable for both sovereign and corporate bond markets. Jupiter's managers say that environment is playing out now across non-U.S. fixed income.

The U.S. bond market, by contrast, carries more uncertainty: a Fed that cannot commit to a clear easing trajectory, a fiscal picture that Jupiter describes as "very uncertain," and no visible sign that the current administration intends structural changes to address the deficit.

On Germany specifically, Jupiter pushes back on optimism about its investment program. The initial enthusiasm, they write, "may be unjustified," citing slow procurement processes and limited industrial capacity as factors that could make deploying funds more challenging than approving them.

What the Fiscal Uncertainty Actually Means

Jupiter's deficit concern is important to understand. Their point is narrower: whatever the legislation delivers on the growth side, Jupiter sees no evidence that the administration is willing to make structural adjustments to address the deficit problem. That matters for long-term U.S. bond credibility, even if it does not matter for next quarter's data.

The Open Question

The unresolved tension in Jupiter's analysis is whether tariff-driven price increases will be a one-time adjustment or something more persistent. If it's one-time, the Fed can look through it and cut. If it compounds through supply chains and wages, the easing cycle gets shorter and slower than markets are currently pricing. Jupiter offers a framework but no definitive answer, because none exists yet. The trajectory of non-farm payrolls over the next two months will be the most direct test of which scenario is unfolding.