Between Donald Trump's constant overbidding, his incessant back-and-forths, and his notorious contradictions, it's almost indigestion. It's indeed difficult to navigate when, in the same sentence, Donald Trump simultaneously mentions the reciprocal customs duties that will be announced on April 2, dubbed "Liberation Day," to put an end to what he describes as years of plundering of the American "piggy bank," and "the surprise of people who will see his clemency." This is therefore too much for the American consumer, whose morale is at its lowest. The consumer confidence index thus fell for the fourth consecutive month, reaching its lowest level since 2021, even falling below the levels observed in 2022, when inflation began to seriously worry households. Only the resilience of the job market prevented a more brutal fall. The outlook for households is no more encouraging, having fallen to a 13-year low. Historically, such levels often precede a recession. This is the crux of the problem: "hard" macroeconomic data always point to a resilient US economy, with no apparent risk of recession. However, this climate of uncertainty could amplify the risk of recession if behaviors were to change through self-fulfilling mechanisms.
Financial markets have therefore entered "risk-off" mode and are replaying the stagflation scenario based on the latest economic figures. PCE inflation, the Fed's preferred indicator, rose 0.4% month-on-month for the core portion (or 2.8% annualized), exceeding consensus forecasts, while real household spending increased by only 0.1%, with a downward revision to the January figure (-0.6% instead of -0.5%). On the inflation front, these data show that price dynamics remain under pressure. With the upcoming introduction of tariffs, which can only be expected to have a negative effect on prices, the 2% target seems difficult to achieve. Although Jerome Powell repeated the transitory inflation story at the last Fed meeting, the statements made by various FOMC members in the days that followed have been more doubtful. Even the most dovish members of the American institution are beginning to question future rate cuts. Only a marked deterioration in the economy or the job market could force them to do so. For the moment, and as indicated above, this is still not the case. While the link between declining consumption and consumer confidence may be easy to make, the negative impact of the particularly virulent flu and the weather conditions at the beginning of the year should not be overlooked.
For now, nothing seems able to stop Donald Trump. Nevertheless, the principle of reality (financial or economic) will, sooner or later, prevail. "Liberation Day," if it doesn't free the markets, will at least remove uncertainty about the customs duties applied. Let's bet that this will be the maximum before the inevitable negotiations. The European Union didn't wait for this "liberation" to consider concessions...
