No "All Clear" Despite Trump Pullbacks

Powell, China Likely to Remain in President's Crosshairs

Last week’s SriKonomics discussed the implicit threat to Federal Reserve Chairman Jerome Powell’s job coming from President Donald Trump’s assertion on Truth Social on April 17 that “Powell’s termination cannot come fast enough.” Having witnessed the European Central Bank reducing its policy rate earlier that day, the President was peeved that the Federal Open Market Committee would not do the same. Instead, Powell had asserted that the Trump tariffs had raised inflationary expectations and made it difficult for the central bank to ease policy.

As recently as last Monday, Trump repeated his criticism of Powell, insisting that the Fed should lower rates because “there is virtually no inflation.” As long-dated Treasury yields rose and the dollar weakened in response to the fresh criticism, the President drastically shifted his position the following day. He told reporters he had “no intention” of firing the Chairman before his term ends in May 2026. Treasurys, equities and the dollar all rallied hard on the news during the rest of the week.

So was it all just a mini crisis remedied by Trump’s decision to let Powell keep his job for the next year? Not by a long shot!

There will be several more opportunities for the Chairman to fall short of the President’s expectations during coming months, starting with the next FOMC meeting set for May 6 - 7. Several senior Fed officials have expressed the view in recent days that it would be too early to understand the full impact of tariffs on economic growth and inflation. Powell will likely reiterate that position at his press conference on May 7. Neither development is likely to please Trump who may express his reaction on social media.

And if the Fed is forced to hike interest rates in subsequent months in reaction to a big increase in the price of essentials, all bets would be off in the Trump - Powell duel! A significant portion of essentials sold by large US retailers has a Chinese import content and that will keep inflation elevated. Expect markets to remain volatile in reaction to the continuing dispute.

A major shift in policy characterized the administration’s attitude toward tariffs as well. After having instituted a 145% levy on Chinese goods, the President made concessions for several electronic items that were critical to large US tech companies. He suggested that he expected a call from Chinese President Xi Jinping offering concessions — a call that never came.

When Trump insisted that talks between US and Chinese senior officials were taking place last week, a Chinese foreign ministry spokesperson labeled it as “fake news” — using a term made popular by Trump himself. (Chinese officials were indeed in Washington, DC but to attend the 2025 Spring Meetings of the International Monetary Fund - World Bank.)

Despite Chinese officials offering no sign of compromise, President Trump told journalists in the Oval Office that US levies on Chinese products “will come down substantially.” He also promised to be “very nice” during the talks. In response, Chinese officials took a hardline posture, demanding that the United States annul “all unilateral tariff measures against China” before expecting concessions.

What do last week’s tariff-related developments mean for financial markets? The unilateral Trump climbdown has been met by a rally in financial assets and a stronger dollar. Such pullbacks from hardline positions could continue to support risk assets in the short-term. But as trade partners see the past threats as toothless, expect that to weaken the US negotiating stance with the rest of the world and have a negative impact on global markets.

Other geographic areas that have significant US commercial ties such as Canada, Mexico and the European Union are closely watching developments on the United States - China front.

And that is no fake news!

Dr. Komal Sri-Kumar

President, Sri-Kumar Global Strategies, Inc.

Santa Monica, California

srikumar@srikumarglobal.com

@SriKGlobal

April 26, 2025

Sri-Kumar Global Strategies, Inc. advises multinational investors and sovereign wealth funds on global risk and opportunities. Dr. Sri-Kumar is regularly featured on business TV and Radio media, and is a frequent speaker in global financial centers on major topics that affect markets and investments.

This publication is for information purposes only. Past performance is no guarantee of future results. While the information and statistical data contained herein are based on sources believed to be reliable, we do not represent that it is accurate and should not be relied on as such or be the basis for an investment decision. Any opinions expressed are current only as of the time made and are subject to change without notice. Sri-Kumar Global Strategies, Inc. assumes no duty to update any such statements. Any holdings of a particular company or security discussed herein are under periodic review by the author and are subject to change at any time, without notice. This report may include estimates, projections and other "forward-looking statements." Due to numerous factors, actual events may differ substantially from those presented. This publication is not to be used or considered as an offer to sell, or a solicitation to an offer to buy, any security. Nothing contained herein should be considered a recommendation or advice to purchase or sell any security. Sri-Kumar Global Strategies, Inc., or its employees or clients may have positions in securities or investments mentioned in this publication, which positions may change at any time without notice. ©Copyright 2025 -- Sri-Kumar Global Strategies, Inc., 312 Arizona Avenue, Santa Monica, California 90401; Telephone: +1-310-455-6071