“The recent tariffs will likely increase inflation and are causing many to consider a greater probability of a recession,” JPMorgan CEO Jamie Dimon, one of the most influential executives on Wall Street, wrote in his annual letter to shareholders Monday. “Whether or not the menu of tariffs causes a recession remains in question, but it will slow down growth.”
The financial pain once again hammered investments around the world on Monday, the third straight day of steep losses after Trump announced tariffs in his “Liberation Day.” Stocks in Hong Kong plunged 13.2 per cent for their worst day since 1997. A barrel of benchmark US crude oil dipped below $US60 during the morning for the first time since 2021, hurt by worries that a global economy weakened by trade barriers will burn less fuel. Bitcoin sank below $US79,000, down from its record above $US100,000 set in January, after holding steadier than other markets last week.
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Trump’s tariffs are an attack on the globalisation that’s remade the world’s economy, which helped bring down prices for products on the shelves of US stores but also caused production jobs to leave for other countries.
It also adds pressure on the Federal Reserve. Investors have become nearly conditioned to expect the central bank to swoop in as a hero during downturns. By slashing interest rates to make borrowing easier for US households and companies, along with several untraditional moves to juice the economy, the Fed helped the US economy recover from the 2008 financial crisis, the 2020 COVID crash and other bear markets.
But the Fed may have less freedom to act this time around because the conditions are so much different. For one, instead of a coronavirus or a system built up on too much belief that US home prices would keep rising, this market downturn is mostly because of economic policy from the White House.
Perhaps more importantly, inflation is also higher at the moment than the Fed would like. And while lower interest rates can goose the economy, they can also put upward pressure on inflation. Expectations for inflation are already swinging higher because of Trump’s tariffs, which would likely raise prices for anything imported.
AP
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