- Powell said the Fed was in no rush to lower borrowing costs.
- The US CPI surprised in January, increasing by 0.5%.
- Trump’s trade policy moves caused fluctuations in the market.
Equities ended last week high and made no move on Monday as US markets remained closed for a bank holiday. Prices fluctuated throughout the week amid mixed economic data from the US and hawkish Fed signals. At the same time, market participants reacted to Trump’s moves on tariffs.
At the start of the week, Powell said the Fed was in no rush to lower borrowing costs. This cautious tone will likely remain as long as there is uncertainty regarding Trump’s trade policies. Experts believe tariffs will drive inflation, forcing the Fed to pause its easing cycle.
Fed rate cut outlook (Source: Bloomberg)
Moreover, market participants paid attention to the US consumer inflation report. The CPI surprised in January, increasing by 0.5% compared to estimates of 0.3%. At the same time, the annual figure increased by 3.0%, above estimates of 2.9%. The upbeat report pushed market participants to slash Fed rate cut bets. This led to a rally in Treasury yields and the dollar. On the other hand, it was bad news for equities as stocks suffer when borrowing costs are high.
Meanwhile, data on Friday revealed that US sales dropped by 0.9%, indicating weak consumer spending. The poor report led to a surge in rate-cut bets, reversing the impacts of the upbeat inflation data.
At the same time, Trump’s trade policy moves caused fluctuations in the market. The US President imposed a 25% tariff on steel and aluminum imports to the US. This was bullish for steelmakers as demand for local goods would increase. As a result, equities rose.
Additionally, Trump introduced a reciprocal tariff on all countries with duties on US goods. However, implementation was delayed when he called for time to carry out investigations. The delay led to a decline in Treasury yields. However, top officials have said the tariffs might come into effect in April.
Trump’s trade policies will likely boost the US economy by increasing demand and production. This, in turn, will be bullish for equities as businesses will flourish. However, his policies might also lead to a spike in inflation, forcing the Fed to maintain elevated interest rates. High borrowing costs make it difficult for businesses to grow, weighing on equities.
