Trump has taken over the second term with the firm desire to reshape the global economy, but some of his decisions seemed to be in front of the turbulence on the capital market and the calls launched by the strong executives, who fear that the radical rates and the interference with the federal reserve could bring the recession.
Trump wants to reshape the global economy. Photo Gettyimages
Confronted with new warnings from financial markets, business leaders and top counselors, the US president has taken milder measures in terms of two of his most common topics: Jerome Powell, president of the federal reserve, and China.
In fact, the leader from the White House recently said he did not intend to dismiss Powell, despite the whole days of criticisms about the policies of the central bank. Also, Trump said he believes that an agreement with Beijing would reduce the rates he imposed on Chinese goods, stresses Radu Puiu, XTB Romania financial analyst.
After a report that the US would be willing to gradually apply lower rates to China over a period of five years, Donald Trump told reporters that Beijing “will do well“Once the discussions end. In addition, the president stated that”We will have a correct understanding with China. ”
Financial markets, worried that their fate depends on Trump's rhetoric
At the same time, Wall Street Journal reported that administration officials are considering plans to reduce tariffs for imports from China. According to the proposals, the rates could reach between 50% and 65%, as a result of a differentiated approach that would involve 35% for non -essential articles for national and 100% for essential ones. All taxes would be applied gradually over five years.
Trump's attitude change has mitigated investors' concerns, which fed a correction of weeks. The S&P 500 index increased by 1.7%, although the advance had been 3.4% during the session.
However, this blow emphasizes that markets and economy are subjected to the rhetoric of the US President, as it has not happened before, a sign that more turbulence is waiting for us, points Radu Puiu.
Who caused Trump to change his mind
The US president gave up his aggressive rhetoric one day after meeting with Walmart, Home Depot and Target directors, who said the import taxes could disrupt the supply chains and increase the prices of the goods. The warnings about the potential of emptying the shops of the shops in a few weeks seemed to resonate with Trump, according to comments.
The undecided nature of President Trump is already known, which means that the vision could be changed again, and the initiated offer, which could be an attempt to attract China back to the table, would not happen without action in the discussions.
The secretary of the treasury, Scott Bessent, reiterated this precaution, saying that the US does not intend to unilaterally reduce the tariffs and that a complete commercial agreement could take two to three years. His remarks have reduced some of the previous earnings of the actions.
When asked who consulted the president about the tariff and commercial policy, the secretary of the treasury said that Trump “constantly request opinions ” From the business leaders, citing the visit of the great retailers and revealing that “The three largest German car companies were present ”.
In fact, Bessent recently advised Trump to publicly emphasize that he does not intend to dismiss Powell and clarify in the market that he believes in the independence of the central bank, according to sources quoted by the international press. These conversations preceded the statement of the president, from the past days that he has no “intention” to dismiss Powell.
It is worth mentioning that Powell said that the announced tariff increases were higher than anticipated and that the taxes are likely to generate at least a temporary increase in inflation. The governor, along with other FED officials, indicated that they are willing to maintain stable interest rates, waiting for clarifications on how the rates are “received” by the economy.
Decisions coming from the White House, stress resistance test
In the first phase, the prospects of the Americans regarding the economy deteriorated against the background of the uncertainties generated by the tariffs imposed by Trump, and the poll data shows an increase in inflation expectations. Many analysts have adopted a more dark vision of the perspectives of the American economy, reducing their forecasts for economic growth and increasing inflation forecasts, stresses Radu Puiu.
If we analyze the history on the independence of the central bank, there is a lot of information that suggests that every time there was political interference and when the governor or the central bank have lost their independence, the growth rate of the economy has been affected, and inflation has increased.
These effects arise as a result of the fact that a central institution without independence no longer follows its mission – in the case of the federal reserve, a double mandate to obtain a maximum employment and a stable rate of price increase. In such cases, the central bank becomes a political tool, used to achieve political objectives.
The market rally represents a new moment of breathing, but if we look at where the market arrived, we notice that it has only returned to the levels before the information that Fed governor Jerome Powell could be dismissed. President Trump seems to be trying to perform stress resistance tests on financial markets, but at the same time, “play” with investors' nerves, financial analyst Radu Puiu shows.
