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Brinks Report > Blog > Economy > Fed’s Steady Hand Offers Relief to Investors Amid Tariff Tensions
Economy

Fed’s Steady Hand Offers Relief to Investors Amid Tariff Tensions

Dolon Mondal
Last updated: March 20, 2025 11:11 am
Dolon Mondal
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Fed’s steady hand offers relief to investors amid tariff tensions
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Trulli

Amid tariff chaos and market turmoil, the Fed hits pause on rate hikes. But is this just a temporary calm before the storm?

Investors finally got some good news this week. The Federal Reserve decided to keep interest rates steady, signaling a cautious approach amid growing economic uncertainty. This move comes as President Trump’s tariff policies continue to rattle markets, raising fears of a global trade war.

Since Trump’s return to the White House on January 20, rapid tariff implementations have shaken investor confidence. Hopes for pro-business policies have been overshadowed by concerns over how these tariffs will impact global trade.

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Market Reaction: A Temporary Boost

Following the Fed’s announcement, the S&P 500 rose by 1.1%, and 10-year Treasury yields dropped slightly. Futures markets also indicated growing expectations of interest rate cuts later this year.

However, the broader market sentiment remains fragile. Over the past month, the S&P 500 has lost about 8%, erasing all gains since Trump’s November election victory. Corporate bond spreads have also widened, reflecting investor worries about an economic slowdown.

Also Read: Trump Demands Lower Interest Rates – Will the Fed Agree?

Economic Outlook: Rising Recession Risks

A recent Reuters poll showed that many economists believe recession risks are increasing. Consumer and business confidence surveys have weakened, and even Trump administration officials admit that tariffs could hurt the economy in the short term.

“We started the year strong, but policy uncertainty is pulling back spending and investments,” said James Camp of Eagle Asset Management. “The big question is whether this will last 100 days or four years.”

Focus on Upcoming Tariffs

All eyes are now on April 2, when new sectoral and reciprocal tariffs are set to take effect. Investors are worried about how these measures will impact consumer spending and corporate earnings.

“It’s all about how erratic the administration’s tariff policies will be,” said Jason Britton of Reflection Asset Management. “While the Fed is monitoring risks, I don’t see a need for clients to adjust portfolios just yet.”

Investors Shift to Safer Assets

With so much uncertainty, some investors are moving toward safer assets. Brendan Murphy of Insight Investment predicts 10-year Treasury yields will fall to 3.9% over the next year. Others, like Josh Emanuel of Wilshire, are reducing risk exposure.

Also Read: Cool Inflation vs. Tariff Fears: Can Investors Win the Tug-of-War?

Fed Slows Quantitative Tightening

In a positive move, the Fed also announced it would slow its balance sheet reduction, known as quantitative tightening (QT). This cautious approach aims to avoid disruptions in short-term funding markets, especially with a government debt cap looming later this year.

What’s Next?

As markets navigate policy uncertainties and evolving trade conditions, the Fed’s next steps will be crucial. Investors will be watching closely to see how the central bank balances inflation risks with economic stability.

For now, the Fed’s balancing act is offering some respite to tariff-struck investors. But with so much uncertainty, the question remains: How long will this calm last?

Also Read: BOJ Holds Rates as Global Trade War Threatens Japan’s Economy: What’s Next?

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TAGGED:economic outlookFederal Reserveinvestor confidenceJerome PowellMarket ReactionS&P 500tariffstrade warTreasury Yields
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