Midweek Update: Trade Policy Shifts, Fed Speculation, and Market Recovery

Markets saw a wave of relief after President Trump softened his tone on Fed Chair Jerome Powell and U.S.-China trade relations. Earlier, Trump criticized Powell for delaying rate cuts and labeled him a “loser,” triggering a sell-off in U.S. assets and sending gold to a record high above $3,500 per ounce.

However, on Tuesday, Trump clarified he doesn’t plan to fire Powell, calming investor fears. He also signaled a more open stance on trade with China, saying he would be “very nice” in talks and hinted at lowering tariffs if a deal is reached. This shift lifted the S&P 500 by 2.5% and the Nasdaq by 2.6%, while gold fell over 1% and the dollar gained strength.

Despite the upbeat tone, Treasury Secretary Scott Bessent reaffirmed a tough stance, accusing China of unfair practices. With the U.S. imposing 145% tariffs and China retaliating at 125%, trade remains nearly stalled. Talks could take years, and sectoral tariffs may still be announced.

There are signs of progress in the broader reciprocal tariff program, paused for 90 days. The U.S. has received trade offers from 18 countries and is negotiating with 34, including Japan and India. However, uncertainty looms over whether these talks can avoid a tariff rebound.

Gold, despite its recent pullback, remains up 25% this year. Analysts see the drop as a technical correction, with bullish outlooks intact unless macro conditions change significantly.