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18 Mar 2025 | 3 minutes to read
The Federal Reserve (Fed) will deliver its latest interest rate decision this week, with the US central bank widely expected to keep interest rates on hold, despite recently published inflation data perhaps suggesting the rate setting Federal Open Markets Committee (FOMC) might consider the case for further monetary loosening shortly. The annual inflation rate in the US, as measured by the Consumer Prices Index (CPI), fell to 2.8% in February from 3% in January and below market expectations of 2.9%. On a monthly basis, CPI rose 0.2%, also below expectations of 0.3%. The print was juxtaposed against the prevailing backdrop, coming as it did amid a general concern amongst economists and investors that the Trump administration’s apparent fondness for trade tariffs would push inflation upward, and potentially even trigger an economic slowdown.
The Fed has previously promised to remain very ‘data dependent’, but the unpredictable nature and impact of Trump’s aggressive, seemingly off the cuff, trade policy potentially makes incoming data more challenging to interpret. As far as the US labour market is concerned however, the incoming data continues to paint a picture of resilience, with the latest Job Openings and Labour Turnover (JOLTS) report showing job openings increasing robustly to 7.74 million, from 7.51 million last month, beating expectations of 7.63 million. Furthermore, the report indicated that initial jobless claims fell, which was a reassuring sign given the job cuts being implemented within government – although many federal layoffs might well come with severance packages meaning they may not show up in the official figures straight away. Financial markets are now pricing in three rate cuts over the course of 2025, compared with between one and two just a few months ago.
President Trump defended his erratic trade war and dismissed the prospect of a US recession before a roundtable of business leaders last week, including the CEOs of JP Morgan, Apple and Walmart, despite confidence seeping from stock markets. Last week saw Trump move forward with plans to implement a blanket duty of 25% on all steel and aluminium imports – widening existing tariffs and ending exemptions previously granted to certain countries. The EU and Canada both responded with retaliatory tariffs on a wide range of goods, which in turn lead Trump to promise further “reciprocal” tariffs would follow. Deutsche Bundesbank President, Joachim Nagel, stated that the spat could keep Germany in recession. Above all, businesses value certainty, and the enduring cost of inconsistent and capricious tariffs may foster a level of distrust about the path of US government policy.
Trump’s domestic voter approval ratings almost went negative last week with his economic approval rating the lowest it has ever been. Of his two main pledges, the President has managed to effectively close the border with Mexico, but he has yet to convince Americans, or the markets, that his economic policies will bring down inflation and not cause harm. Time will tell whether Trump’s attempt to repatriate jobs and wealth from oversees will succeed or backfire.
US stocks ended the week in negative territory, with both the S&P 500 and Nasdaq recording their fourth consecutive week of losses, as the prospects of a growing trade war threaten to weigh on the economic outlook. On Thursday last week, the S&P 500 officially entered correction territory, down 10% from its recent highs, while the tech-heavy Nasdaq tumbled 4% on Monday - its worst single-day return since 2022. The consumer discretionary sector has been the hardest hit, down over 14% year-to-date. This reflects growing investor concerns about weakening consumer spending, with early signs of softness beginning to emerge. The recent losses in the US stock market have erased the post-election gains, pushing indices below the levels seen on polling day last November. Overall, investors appear less willing to pay premium valuations for US companies than they were a month ago. In contrast to US struggles, European stocks have shown strength. The Euro STOXX 50 has risen +10% year-to-date, driven largely by a c.+15% advance from Germany’s DAX index. The pullback in the US market is however fully within the parameters of the normal ebb and flow of equity market moves. Historically, in any given year, investors witness one to three corrections in the 5% to 15% range - underscoring the fundamental value of diversification and a longer-term time horizon.
As always in a fast-paced and ever-changing world, our investment team remains fully focused on making sense of incoming economic data and continually analysing company/security fundamentals, to prudently build and manage optimal portfolios for our clients’ risk profiles and investment requirements.
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