news 
Trade War Tug-of-War: Markets Fall as Trump Pulls One Way, Fed Another
The US-China trade war has brought about an unprecedented era of uncertainty for financial markets. Chair Jerome Powell now faces a tough decision ahead of next week’s policy meeting as the tariffs’ impact on future monetary policy is evaluated. While the Fed is expected to maintain interest rates steady for now, Powell must address how these tariffs might influence future monetary decisions.
Powell has previously stated that the central bank could ignore one-time price increases from tariffs. However, the risk grows that these higher costs could become embedded in consumer expectations and lead to more lasting inflation. Recent inflation reports suggest the Fed’s preferred measure, the core personal consumption expenditures index, will increase to between 2.7% and 2.8% in February, a marked uptick from January’s 2.65%.
Market traders still expect the possibility of three or more interest rate cuts this year. However, this outlook could change depending on how the Fed views the inflation risks from tariffs.
Both Trump and Powell appear to be taking a similar “wait-and-see” approach, though their communication styles differ greatly. While President Trump has been less transparent, dismissing concerns about falling stock prices and continuing new tariff announcements, Powell has been clear that the Fed can wait before taking action as the tariff situation develops.
The president’s approach to tariffs has been consistent in philosophy but unpredictable in practice. Some countries have received exceptions while others face new threats, creating an environment of “economic paralysis” that impacts consumer confidence. Business leaders often say that this uncertainty around tariff implementation is more damaging than the tariffs themselves.
Wall Street analysts are struggling to assess the timing and impact of Trump’s announcements. Some suggest that what hurts markets today might actually improve corporate profits later in the year. Bill Adams, chief economist for Comerica Bank, notes that the Fed’s response depends on whether they focus on current policies or anticipate future fiscal decisions. “If the Fed makes monetary policy decisions based on policies enacted today, they could make substantial cuts to interest rates in 2025,” he said.
The market remains caught between Trump’s “America First” agenda and the Fed’s dual mandate of stable prices and maximum employment. Investors face an uncomfortable reality of short-term pain with uncertain long-term benefits.
As both Trump and Powell maintain their cautious stances, Wall Street awaits clarity. The only certainty for now appears to be continued market volatility and economic uncertainty.
Source: https://coincentral.com/trade-war-tug-of-war-markets-fall-as-trump-pulls-one-way-fed-another/
