Weekly Roundup: Economic Uncertainty, Safe-Haven Surge, and Fed Decisions!

U.S. President Donald Trump has announced a 90-day freeze on recently implemented reciprocal tariffs, just hours after they took effect. The decision aims to allow negotiations with trading partners and follows recent financial market turmoil. However, tensions with China remain high, limiting the positive market impact. Investor confidence is shaken, with the U.S. dollar declining sharply, the S&P 500 giving up gains, and safe-haven assets like gold, yen, and the Swiss franc surging.

Despite the pause for some countries, tariffs on China have intensified. After China imposed a 34% retaliatory tariff, Trump raised U.S. duties on Chinese goods to 145%, prompting China to respond with matching tariffs. These escalating actions threaten to severely disrupt global trade, especially given the $700 billion annual trade volume between the two nations.

Economists warn that the U.S. average import duty has now hit 24%, up from 2% at the start of Trump’s second term. This sharp rise could dent GDP growth and raise inflation. While proposed tax cuts might cushion the blow, stricter immigration policies may further hamper growth. The Dallas Fed estimates current deportation rates could reduce GDP by 1% this year.

On the monetary policy front, inflation data showed headline CPI fell 0.1% in March, while core CPI rose 2.8% year-over-year. Markets now expect rate cuts totaling 88 basis points by year-end, with the first likely in June. However, Fed officials remain cautious, citing concerns over tariff-driven inflation and stagflation risks.

The Duhani Capital Research Team believes the Fed is unlikely to cut rates in June without clearer signs of economic weakness and lower inflation. In the meantime, safe-haven flows and a weaker dollar may continue to benefit assets like gold and the yen as uncertainty persists.