It is of interest to a president to ensure that the economy and the stock market are strong. However, the Trump administration has been doing the opposite.
The mood in the markets has been optimistic this week, largely because the president and his advisors softened his positions, retreating some of his threats to China and the Federal Reserve. Relative periods calm as the latter have been a relief, but they have not lasted much, for good reasons.
Start with the imposition of tariffs of President Trump in countries around the world, especially his decision to start a commercial war with China. Then, consider its repeated verbal attacks against the FED and its president, Jerome H. Powell, who have threatened the independence of the Central Bank.
Add the weakening and the wholesale of a large number of important government agencies, the defundimency of universities and the open consideration of the policies that could evict the bonds of the US dollar and the treasure of their place in the center of world finances. There is much more.
Fundamentally, investors and business executives are nervous, and economists have deep concerns about the potential damage made to the United States and countries around the world.
I have had a spooky feeling about what we have been seeing. It is like seeing a hurricane that forms in the ocean, one that could go directly to New York City. Prepare for weather events like this is important. But this slow motion storm is something different. It is self -inflicted, initiated by man in the oval office, which has the power to limit the damage, if it is no longer to avoid it completely.
The economic effect
Economists have rushed to understand the logic behind Trump’s policies, many of which seem self -destructive. For example, Trump’s tariffs, as proposed, would induce an offer shock in the United States approximately equal to a duplication of oil price, estimated the Peterson Institute of International Economics.
Oil price clashes have triggered fugitive inflation and, often, have led to recessions. A shock of this magnitude is “something that every government of the United States has tried to resist, and it is difficult to imagine being something that anyone would voluntarily accept,” said Lawrence Summers, a former Treasury Secretary of the United States, this month.
He added that Trump’s tariff policies are “the greatest invitation to the stagflation we have had since the 1970s.”
Stanflation is a combination of high inflation and slow growth. However, tariffs on the scale proposed by the President could cause it, simultaneously raising prices while discouraging consumption and investment, and they take out people without work.
In the growth front, the perspective is already much more dim than before the day of the inauguration in January. The International Monetary Fund said Tuesday that the tariff wars started by Trump would slow down economic growth worldwide to 2.8 percent this year from 3.3 percent in 2024; In the United States, it would fall to 1.8 percent in 2025, below 2.8 percent.
Tariffs are a tax for consumers. Based on established rates or proposals until April 15, US consumers “face an average general rate of 28 percent, the highest since 1901,” according to the Yale Budget Laboratory, a non -partisan research center.
This year, tariffs would increase prices for average home by 3 percent, said the center, which is “the equivalent of an average loss by domestic consumer of $ 4,900”. But many people will reduce expenses or replace cheaper products, reducing their costs. Even so, “the increase in the price after the replacement is established by 1.6 percent, a loss of $ 2,600 per household,” said the budget laboratory.
There will also be a cost in the works. Due to the rates, the unemployment rate for the end of this year is expected to be 0.6 higher percentage points, the researchers said, and there could be 770,000 people less in payrolls.
But all this is still fluid. After imposing unilaterally tariffs, and, in some cases, to use statutes in a novel and questionable manner, which are being disputed in court, Mr. Trump invited countries around the world to participate in negotiations. One day next month, I could well declare that commercial conversations have been satisfactory and that tariffs will decrease.
At the moment, however, the situation is tense, particularly between the United States and China. The United States has imposed 145 percent tariffs on China, which has responded with 125 percent tariffs on US assets. Both countries have additional restrictions on specific elements. Unless an approach is reached, the US-China trade will be reduced significantly.
On Tuesday, Scott Besent, the Treasury Secretary and Trump said the commercial war will unwind the negotiations. But Chinese spokesmen in Beijing said Thursday that there would be no conversations unless the United States treated China with respect and dignity.
The president clearly awaits a new commercial agreement with China. However, it remains a “tariff man” who sees more damage than well in “globalization”, the fabrics of decades of world economies. Countries around the world have begun to rethink their trade, investments and loyalty routes, doing what they can to isolate against the stress emanating from the United States.
The markets
In a straight cane, the US stock market created a modest rally last week. But US actions have still declined abruptly this year, while stock markets in many countries in Europe and Latin America have two digits.
American bonds have been more stable, although yields remain stubbornly high. One reason is the assessment in the bond market that tariffs could attract the Fed to another fight with inflation. The consumer price index was at an annual rate of 2.4 percent in March. It has been well above the 2 percent objective of the Fed since 2021.
On Wednesday, the Beige Book of the Fed, its conditions survey throughout the country, said that due to tariffs, “uncertainty about international commercial policy was generalized.” The fed policy formulators meet next month, but until the perspective is clearer, it is unlikely that the Central Bank will take measures on interest rates.
A Fed rates cut would probably encourage the stock market and stimulate the economy.
But fed independence can be even more appreciated. Economists have discovered that when central banks are well fortified against attacks by politicians, monetary policy tends to be more stable and the strongest economies.
Then, on Wednesday, when the president said that his many comments that rebuked Mr. Powell had been misunderstood, and that he really had no “intention” to try to shorten Mr. Powell’s mandate as president of the Fed, the stock market recovered. Even at the expense of higher interest rates, it seemed that the merchants were pleased that the role of the Fed as a guardian of the market remained intact.
The perspective
Evaluating where markets go here is especially difficult because much depends on the president. Sometimes he has silenced his voice but has not disguised his disdain by Mr. Powell. And although he has periodically retreated on tariffs, he has never renounced his commitment to raise them.
That leaves markets in a dilemma because the president is breaking decades of tradition and economic education. A large majority of economists see tariffs as they advise badly, and see the president’s approach in the country’s trade balance by country as disconcerting.
Insisting that all trade everywhere needs to be balanced, and that imbalances are inherently “unfair”, as the president has done, it is like insisting that there is something wrong with spending money in the supermarket and being paid by his employer. His individual accounts are possibly out of balance: he is spending money with one and getting money from the other. But who cares? It is difficult to see something unfair in that.
Nationally, the United States buys things you want or needs and cannot grow or do at a national level at a reasonable price, such as bananas or iPhones. Pay for them in several ways, with exports of machinery or software, music or films, or through loans or investment income, and obtains immense benefits through this exchange.
Imposing some specific tariffs to protect national security can make sense, as well as taking measures to restore prosperity to the national regions they have suffered when local industries have not been able to compete with foreign companies. But impose higher rates in more than a century worldwide? The consensus is that this approach is reckless.
It is not surprising that the markets respond favorably to the suggestions that the rates will be negotiated down.
However, uncertainty about Trump’s policies is abundant in financial circles.
It is beginning to appear in corporate gain calls, with the executive directors who lower their projections for next year, or indicate that they are less sure of them. Stock analysts have become nervous. They have sharply reduced S&P 500 earnings and income, according to FACTSET, an independent financial research service. CBS News reported that Target and Walmart have warned the president that their tariff policy is interrupting supply chains and could expose the store shelves in the coming weeks.
Market risk perceptions have increased. As a multiple of profits, actions prices have fallen. The feeling that possessing the US Treasury Bonds. Uu. It has become more risky can be a reason for the greatest yields of the bonds. When investments seem more risky, you want a better price or better performance, to carry that risk. This is a weight in the markets, and although it can be temporarily lifted by emollient words, it is still a heavy load.
Perhaps the most hopeful augury for markets is that the first year of a president’s mandate is often the worst for actions and bonds.
The presidential cycle theory is thus: just out of an electoral victory, and far from the next, it is a auspicious moment for a politician to take difficult measures. If you are going to activate a recession, make it at the beginning of your first year in office because there is time to recover. However, soon, with the mid -period elections in view, it will be time to stimulate the economy and markets.
This realization could cause a change in administration policy.
But I wouldn’t go too far with this.
If Trump left all the rates he has proposed, and there are no signs that he really happens, the problems that have already introduced not everyone would disappear.
By tearing the fabric of international relations, he has posed lasting questions about the validity of the promises of the United States in commerce and diplomacy, and has added a deep uncertainty to the planning of companies, investors and workers around the world.
It can improve the situation, and certainly I hope it does, but it is too late to pretend that none of this has happened.
