In a few weeks, many things happened. President Donald Trump issued radical prices tariffs that have attracted most of the investors who are offset, sending shares plunging to one of the fastest rates in history. A historic rally also followed when Trump announced a 90 -day break on most prices, with the exception of those of China.
Since then, the market has gone back and forth because investors have done their best to understand what will happen with commercial negotiations and how prices could affect the economy once everything is said and done.
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The president of the federal reserve, Jerome Powell, recently had the chance to weigh on the issue during a speech he delivered at the Chicago Economic Club on April 16. In a few words, Powell seemed to issue a striking warning to President Trump of the potential impact of prices.
Although Trump has interrupted high rate rates for specific countries, there is always a basic tariff of 10% on goods from all countries except China. Tensions between the United States and China have increased, and Trump has now slapped goods from the second world economy with 145% prices. However, there are exceptions. For example, the administration recently interrupted prices on Chinese manufacturing electronics. Meanwhile, China has not fallen, rather retaliated with 125% prices on American products. Trump also issued 25% covered rates on imported aluminum, steel and keys automotive parts.
Since Trump took office, Powell has kept the Fed in a model of detention, suggesting that the agency needs time to see how Trump’s prices and immigration policies will affect the economy before continuing the rate reduction campaign that started last year. However, Trump’s size and speed of prices have even taken the Fed out of deputy, according to Powell:
The level of tariff increases announced so far is considerably greater than expected. The same goes for economic effects, which will include higher inflation and slower growth. Survey based on the short -term inflation expectations and market expectations have increased considerably, the participants in the tariff survey. Investigation measures for longer -term inflation expectations, for the most part, seem to remain well rooted; Breakevens based on the market continue to operate almost 2%.
Powell added that the agency could be found in “the difficult scenario in which our double mandate objectives are in tension”. What does that mean? Well, the Fed’s double mandate is to obtain maximum employment and stable prices. When prices are increasing too much, the Fed increases interest rates to slow the economy, bringing prices together and avoiding inflation on the run.
If unemployment increases and the economy slows down, the Fed will want to reduce interest rates in order to stimulate the economy. But this could further increase inflation and inflation could already increase due to prices. This whole situation puts the Fed in a wrestling and also risks a stagflationist environment where growth ends, prices remain high and unemployment also increases.
Image source: Federal reserve.
Powell described the recent “very fundamental” policy changes and said it was difficult to find a similar event in history. This probably means that the Fed will continue to wait and see what is going on, to the great dissatisfaction of Trump, who has repeatedly said that he thinks that the Fed should reduce interest rates.
The market did not like Powell’s messaging. THE Industrial average Dow Jones closed on April 16 down 1.6%, while technology Nasdaq Composite fell 3.1%.
However, Powell’s continuous resistance to the decrease in rates and increasing concerns on this subject could further encourage the Trump administration to conclude agreements with the largest business partners in the country. While Trump’s initial tariff break has soared on April 9, the market has lost ground since then, because an agreement with China still seems far away. The Treasury Secretary, Scott Bessent, recently told Yahoo! The finance he thinks that the administration may have a “substantial clarity” on trade agreements with most major trade partners in the United States other than China before the end of the price break.
That said, there will always be a lot of uncertainty in the coming weeks, even months, unless commercial transactions – including one with China – materialize faster than expected. Investors should not try to play volatility.
Make sure that when you buy actions, you have long-term intentions. There are certainly good deals to have on the market today, and Powell said that long -term inflation expectations are always under control. It may be preferable to look for stocks less connected to China at the moment, as these could be the most volatile. But in the long term, China and the United States are likely to reach an agreement.
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Bram Berkowitz has no position in the actions mentioned. The Motley Fool has no position in the actions mentioned. The Motley Fool has a policy of disclosure.
The president of the Fed, Jerome Powell, has just issued a striking warning to President Trump on the impact of prices was initially published by the Motley Fool
