Trump faced alerts about barren shelves and economic instability due to tariffs and dismissing Powell. His reversal spurred stocks to increase.
Unconventional Story:
Trump's Trade Wars: Chaos, Calm, and Everything in Between
The rollercoaster ride that is the U.S. economy under President Trump continues, with his recent tariff spats and verbal jabs at Federal Reserve Chair Jerome Powell causing a stir among some of the nation's top advisors, bigwigs in the corporate world, and ordinary Joes on Wall Street.
This week, the markets have been anything but tame, seemingly reacting to every tweet, press conference, and headline involving Trump and his economic policies. But on Tuesday, Trump flicked on the calm switch, saying he has no intention of firing Powell, causing markets to breathe a collective sigh of relief.
Wall Street danced with joy on Wednesday, with the Dow surging 430 points, the S&P 500 gaining 1.5%, and the tech-heavy Nasdaq Composite rising 2.4%. Investors bought US Treasury bonds again, sending the benchmark 10-year yield down sharply to 4.3%.
Top administration officials were also glad to see Trump backing down on Powell, as they had become unnerved by the heated rhetoric and worried about a prolonged legal battle were Trump to try to oust the Fed chair. Trump himself stated that his administration is "actively" talking with China, and traded barbs with the European Union as well, adding that "every country wants to partake" in trade deals with the U.S.
But it wasn't always smooth sailing. A day before Trump's Oval Office announcement, he met privately with CEOs of four major U.S. retail companies – Walmart, Target, Home Depot, and Lowe's – who warned of the economic fallout from Trump's tariff policy and the uncertainty it was causing for financial markets. These retail titans presented a dire economic picture that could hit in a matter of weeks, with store shelves potentially going bare.
Trump's decision to back away from firing Powell, and his de-escalation on the tariff front, may have been a tactical move to ease market concerns. But it's not the first time these major players have butted heads. In the past, Trump has argued that the Fed should cut rates to speed up the economy, but Powell has consistently said he will make decisions about raising or lowering rates only after careful consideration and will not rush a decision or issue an emergency rate cut before the rate-setting committee's next scheduled meeting in May.
White House press secretary Karoline Leavitt continued Trump's line of attack on the Fed during a press briefing, suggesting that the Fed's actions in the late stages of the Biden administration could be political. There is no evidence that the independent Fed is taking a political stance, and Powell has vehemently and repeatedly denied suggestions that the Fed plays politics when making its monetary policy decisions.
Trump's top economic adviser Kevin Hassett has flip-flopped on the Fed, at one point backing its independence but later questioning if it was actually doing things out of the best interest of the economy or for partisan reasons. However, White House officials had long determined that firing Powell would spark legal challenges and market tumult, and it seems Trump has finally realized that his unconventional approach to economic diplomacy might not be the best move after all.
This story has been updated with additional reporting.
CNN's John Towfighi and Kit Maher contributed reporting.
Enrichment Data:
Trump's economic policies, including tariffs on China and his criticism of Federal Reserve Chair Jerome Powell, have significant consequences and reactions across the U.S. economy, financial markets, and among top advisers.
Tariffs on China:- Economic Impact: The tariffs could generate nearly $400 billion in revenue, equivalent to about 1.3% of U.S. GDP, but also risk increasing inflation by 1–1.5%, potentially leading to negative real disposable income growth[1]. They may also strengthen the U.S. economy by reducing imports and boosting domestic production, particularly in manufacturing and steel[2].- Market Reactions: Tariff policies contribute to market uncertainty, affecting business confidence and investment decisions[2].
Attacks on Federal Reserve Chair Jerome Powell:- Financial Market Impact: Criticism of Powell has added to market turbulence, with stocks experiencing volatility. Removing Powell could exacerbate market chaos and reduce confidence in monetary policy[4].
Top Advisers and Support:- Support for Tariffs: Some studies and advisors argue that tariffs can effectively strengthen national security and economic objectives by reshoring industries and creating jobs[2].- Concerns about Powell's Leadership: There is a growing consensus among some advisors that stability in the Federal Reserve leadership is crucial during times of market volatility[4].
- The business world has been following President Trump's trade wars and verbal exchanges with great interest, including the recent tariff spats and remarks about Jerome Powell, the Federal Reserve Chair.
- The Dow, S&P 500, and Nasdaq Composite all surged, gaining significantly, after Trump announced that he would not dismiss Powell, causing a collective sigh of relief in finance and virtually every industry.
- Retail giants such as Walmart, Target, Home Depot, and Lowe's had previously warned Trump of the potential economic consequences and the uncertainty that his tariff policy could cause for retail and personal finance.
- The transportation industry, especially manufacturing and steel sectors, have been discussed as potential beneficiaries of the tariffs on China, due to an increase in domestic production.
- Experts in wealth management and banking-and-insurance were scrutinizing the impact of Trump's economic policies on investors, corporations, and ordinary citizens.
- White house press secretary Karoline Leavitt and other officials have been voicing concerns about the Federal Reserve's possible politicization, despite denials from independent monetary policymakers like Jerome Powell.
- The stock market, fintech, and general news outlets have reported extensively on the consequences of Trump's tariffs and the tensions between the White House and the Federal Reserve Chair.
- Critics argue that Trump's chaotic approach to economics, including the threats against the Federal Reserve and tariffs on China, may increase crime-and-justice issues through the destabilization of the economy.
- Decisions on raising or lowering interest rates have been the subject of ongoing debates between Trump and Fed Chair Powell, and the uncertainty surrounding monetary policy has caused market volatility.
- War-and-conflicts have not been a direct cause of Trump's trade wars, but the political and economic tensions created by the tariffs and attacks on Powell have sparked concerns about international policy-and-legislation and potential trade conflicts with the European Union.
- Throughout these events, the press, led by journalists like John Towfighi and Kit Maher, has been at the forefront of reporting on the impact of Trump's economic policies on various industries and aspects of people's lives.