Today was a very good day for stock investors as the major indices—the Nasdaq 100 (QQQ), the S&P 500 (SPY), and the Dow Jones Industrial Average (DIA)—surged after President Trump announced that he would pause tariffs. This led to significantly higher than usual volumes across all three ETFs, with the SPY seeing the highest at around 235 million shares traded. For reference, the average is 65.84 million. Furthermore, the consumer staples sector (XLP) was the session’s laggard, while the tech sector (XLK) was the leader.
Nevertheless, Federal Reserve officials are still concerned that President Trump’s steep tariffs could drive inflation higher and hurt the economy. According to the Fed’s March meeting minutes, policymakers were already seeing signs that businesses were raising prices or planning to, even before the full details of the tariffs were announced. Some officials warned that the U.S. might be headed toward stagflation, which is a mix of high inflation and a slowing or shrinking economy, and agreed to keep interest rates unchanged at 4.25%-4.50% while they monitor incoming data.
In addition, financial markets have dramatically scaled back their expectations for Federal Reserve rate cuts. Earlier in the week, traders had bet on multiple cuts beginning as early as May. But after Trump announced a 90-day pause on new tariffs for over 75 countries—while simultaneously increasing the tariff on Chinese goods to 125%—those bets were revised. Futures now suggest just three quarter-point cuts for 2025, with the first likely in June. Even though Trump paused Tariffs, it is worth noting that the 10% baseline Tariffs are still in place.
At the same time, economists and analysts are closely watching the upcoming March consumer price index (CPI) report. Forecasts suggest that core CPI will rise 0.2% to 0.3% month-over-month and bring annual core inflation to around 3%. However, many believe that the real inflation effects of tariffs will start showing up in later reports, such as May or June. As inflation remains above the Fed’s 2% target, and with tariffs likely to raise prices further, the central bank may find itself in a tough spot, especially if the economy begins to weaken under the pressure.