Is the golden age turning into a leaden age? The hopes raised in the financial markets by the election of Donald Trump and his "pro-growth" agenda of deregulation and tax cuts continue to crumble. The chaos and uncertainty surrounding tariffs, the constant escalation, and the backpedaling have taken their toll on American consumer confidence, with inflation expectations rising sharply. While the impact of the trade war and the overall decline in confidence will undoubtedly have a negative impact on American growth, the rise in recession fears across the Atlantic (see chart of the week) nevertheless does not seem entirely consistent with macroeconomic data, which nevertheless remain resilient, particularly the job market. Beyond these legitimate fears, investors, long convinced that Donald Trump was closely monitoring the performance of the financial markets and would intervene to stem any excessively sharp correction (the "Trump put"), got their money's worth. Indeed, far from reassuring Wall Street, his statements and those of his Treasury Secretary Scott Bessent only increased the volatility of stock indices by downplaying the recent decline, declaring, for example, that the corrections were healthy and normal. Far from offering explicit support or a desire to appease the situation, the American president is therefore, for the time being, prioritizing his political agenda and the expectations of his electorate (Main Street). While he cannot turn a blind eye indefinitely, the "Trump put" is probably further away than the -10% correction observed so far in the American markets.
In this prevailing fog, Jerome Powell and the Fed, relegated to the background, can savor this welcome respite. Between better-than-expected inflation figures in February but still close to 3%, the still-unknown impact of tariffs on inflation and growth, and a slowing but resilient US economy, it is urgent for the FOMC to do nothing. The Fed is therefore expected to play it safe again this week at its monetary policy meeting.
While the trade war also impacted European markets early last week with Brussels' announced response, the weather remains positive since the announcement of the German fiscal stimulus plan. This is especially true since an agreement was reached with the Greens at the end of the week to allow its adoption in parliament in exchange for minimal concessions. The risk of a constitutional impasse was also lifted on Friday with the Karlsruhe Court's rejection of the AfD and Die Linke's requests to postpone the vote until the new legislature. Following these announcements, and although still volatile, rates ultimately remained generally stable, perhaps proving that the bulk of the recovery plan is already integrated into the recent increase.
