The stock market dropped sharply after the Fed’s interest rate announcement early yesterday afternoon. The Fed did, as expected, lower the Fed funds rate by 0.25%. But it also signaled that it will move cautiously in lowering short rates from here on out.

The main concern is, I think, lack of clarity about what the Trump economic program will turn out to be:

–Tariffs are one issue. Tariffs are a tax on imports. The tax is paid either by the seller, the buyer or both, according to the relative market power of each over the other. My go-to first guess for stuff like this is to use 50-50. If so, a 20% tariff on an imported good produces a 10% increase in its domestic price. So it’s inflationary.

–Income taxes are a second. Arguably, the one good thing Trump did during his first term was to lower corporate income taxes to a level where domestic firms were no longer strongly incentivized to recognize profits in lower tax-rate jurisdictions abroad. He also, however, lowered income tax rates for the wealthy as a supposed economic stimulus. Theory and experience both show that the higher one’s income the larger the percentage one saves rather than spends. So lowering taxes for the wealthy may get campaign donations but it’s the worst tax thing to do if you want to create economic stimulus.

The worry here is that if the government continues to need to issue bonds to fund its spending plans, at some point–no one knows exactly when–creditors will begin to worry that they won’t be paid back. If so, they’ll demand a higher return to offset the greater perceived risk. Worse if foreign lenders begin to also lose confidence in the currency.

Hence, the Fed’s lack of apparent enthusiasm, at least for now, for a promise of further interest rate cuts.