One of the most pivotal weeks in years – even decades – for the global economy closed on Friday to the sound of the Nasdaq crashing into a bear market as investors fear U.S. President Donald Trump‘s trade war will tip the world into recession. Less than 48 hours after Trump raised tariff barriers to the highest in over a century, China on Friday said it would slap additional 34% duties on all U.S. imports, escalating the global trade war to new, dangerous heights.
Any hopes investors had of Federal Reserve Chair Jerome Powell coming to the rescue by signaling a readiness to cut interest rates – as Trump had appeared to pressure him into doing in a social media post earlier in the day – were dashed, as Powell stressed the “elevated risks” to both growth and inflation. This ‘wait and see’ approach rattled Wall Street further – the S&P 500’s 6% slump meant the index’s market cap plunged $5 trillion in just two days.
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The Fed is in a real bind, faced with the rapidly rising risk of recession and soaring price pressures. Treasuries may have been caught between these two stools on Friday, but it is crystal clear where rates traders are putting their money – four rate cuts are fully priced in for this year, starting in June.However, given the ferocity of the equity market selloff, collapse in confidence and extraordinarily uncertain outlook, it wouldn’t be a total shock if the Fed cut rates at its May 6-7 meeting. Indeed, could an inter-meeting move be ruled out if the market rout continues next week?
This is the heaviest slide across global stocks since the pandemic in 2020. But unlike that crash and the Global Financial Crisis in 2008, the current turmoil on Wall Street is a result of clear-headed policy choices made by a government that would have known this kind of outcome was distinctly possible, if not highly likely. Many analysts reckon this hasn’t been seen before. Some of the economic and market numbers that have been seared into investors’ consciousness this week haven’t been seen for a long time either:
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