According to the Zhitong Finance APP, since taking office in January 2025, the Trump administration has implemented a series of severe new tariff policies and plans to impose further tariffs, while also beginning destructive cuts to federal positions and spending, risking a rupture in political relations with Europe. These measures have not only triggered countermeasures from global trade partners but have also significantly impacted the domestic economy.
Business and consumer confidence indices have significantly declined, some manufacturing indicators have weakened, and the U.S. stock market, which had previously driven household wealth to new highs as Trump was set to return to the White House, has also fallen sharply, potentially suppressing consumption among high-income groups—whose spending had previously supported overall economic growth.
Although the latest data shows that employment growth remains stable overall and inflation continues to be moderate, the tariff policies implemented by the U.S. and retaliatory actions from trade partners have increased the likelihood of a reversal in the situation.
Faced with so many variables, Federal Reserve officials—the most important U.S. economic decision-makers outside the new government—will gather in Washington next week to try to clarify the changes in the economic situation since the last meeting in January.
Federal Reserve Chairman Jerome Powell has stated that the Fed &#34;will not criticize or praise&#34; government decisions, but he must deal with the consequences of those decisions. If the economic situation in January was uncertain, the risks that were primarily speculative at that time have now become more concrete.
A recent survey found that economists almost unanimously believe that the risk of a short-term recession has increased, while some top economic forecasters indicate that economic growth may slow down alongside persistent price increases.
Both scenarios may force Powell and his colleagues to make difficult choices between supporting the economy and employment through interest rate cuts and maintaining higher rates to control inflation and inflation expectations.
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&#34;Detox&#34; Period
The Federal Reserve will hold a monetary policy meeting on March 18-19. Although the market expects rates to remain unchanged this time, the economic forecasts update from the 19 policymakers will be the focus. Currently, investors expect the Fed may cumulatively cut rates by 75 basis points over the next nine months, far exceeding the 50 basis points anticipated last December.
Tim Duy, Chief Economist at SGH Macro Advisors, stated after Powell attended a meeting in New York last week that in his last remarks before the meeting, Powell mentioned three scenarios regarding &#34;sticky inflation, inflation declining faster than expected, and unexpectedly weak labor market,&#34; which correspond to the possibility of extending the high-rate cycle or further rate cuts. &#34;However, he did not explicitly mention strategies for dealing with the coexistence of rising inflation and deteriorating employment. Of course, this is now the most interesting policy issue.&#34;
With the widespread implementation of Trump's tariff plan, there are concerns that it may trigger large-scale price shocks and significantly impact public expectations (which is also important for the Fed). Therefore, the conflict between the Fed's 2% inflation target and maximum employment goal may have quietly appeared in policymakers' remarks
In addition to other measures that may slow economic growth, such as laying off federal employees and canceling federal contracts, the policies implemented during Trump's early presidency released a series of conflicting forces, forcing the Federal Reserve to assess whether the factors driving up prices or those suppressing growth and employment would dominate.
Treasury Secretary Mnuchin referred to all of this as a &#34;detox&#34; period to free the economy from public spending. Commerce Secretary Ross stated that even in a recession, implementing Trump's policies would be &#34;worth it.&#34;
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Worrying Signs
However, the impact on the market and confidence is undoubtedly significant.
The S&amp;P 500 index has fallen more than 10% from last month's record high, far below the levels boosted by corporate optimism about strong economic growth when Trump was elected.
Short-term Treasury yields have exceeded long-term yields, with investors demanding lower returns on 10-year Treasury bonds than on 3-month Treasury bonds. This &#34;inversion&#34; of the yield curve sometimes signals a loss of confidence in the economy in the short term.
Although Federal Reserve officials are reluctant to overemphasize this, the difference between the 10-year and 3-month Treasury yields has been identified as one of the most noteworthy spread indicators in earlier Federal Reserve research.
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Surveys also show a decline in small business confidence, and a recent report from software company Intuit, based on data from businesses using its payroll software, indicated that small businesses made layoffs in January.
Overall data, typically released with a one-month lag, has not yet shown much recent change, with most of the data traceable to less than two months after Trump took office.
In February, businesses added 151,000 jobs, and the unemployment rate remained relatively low at 4.1%, but the surveys used to make these estimates were premature, failing to capture the cumulative impact of layoffs that may arise from government employees and businesses or agencies facing threats or cancellations of federal contracts.
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Goldman Sachs Lowers Growth Expectations
Inflation remains moderate, and Federal Reserve officials generally still believe that inflation will continue to fall back to the 2% target.
However, consumer spending unexpectedly declined in January, and consumer-facing companies, from airlines to retail giants like Target (TGT.US), have warned of cautious consumer attitudes and lackluster sales prospects.
Meanwhile, the index attempting to track uncertainty has surged to its highest level since the COVID-19 pandemic, and this uncertainty may affect spending decisions by consumers and businesses
In a recent forecast update, Goldman Sachs economist Jan Hatzius lowered the growth outlook for the United States in 2025 from 2.4% to 1.7%, noting that the downgrade is unrelated to recent economic data, which, while not supporting growth, at least remains &#34;decent.&#34;
&#34;The reason for the downgrade is that, given the scale of the Trump tariffs and his apparent intention to expand tariffs globally, our assumptions about trade policy have become quite unfavorable,&#34; he added, noting that the government now seems to be &#34;guiding expectations that tariffs will lead to economic weakness in the short term.&#34;
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Trump's policies have had a significant impact on the U.S. economy. Federal Reserve officials will hold a meeting in Washington next week to analyze economic changes since January. The new tariff policies and spending cuts implemented by the Trump administration have triggered global trade retaliation, leading to a decline in business and consumer confidence and a sharp drop in the stock market. Although job growth remains stable and inflation is moderate, economists generally believe that the risk of a short-term recession is rising, which may force the Federal Reserve to make a difficult choice between cutting interest rates and controlling inflation