Trump's policies are creating economic uncertainty as labor markets cool and businesses delay investments. Today's CPI report will be crucial for Fed policy direction, with forecasts suggesting slight inflation easing. Meanwhile, new tariffs on China and threats to EU, Japan, and others are dampening global hiring outlooks, potentially strengthening gold as a safe haven asset.

Trump’s Policies Shake U.S. Economy as Labor Market and Business Optimism Decline

Donald Trump's policies have begun to upend the U.S. economy, fueling uncertainty and economic concerns---consumer inflation expectations have surged to record highs, household finances are deteriorating, economic activity is weakening, the labor market continues to cool, and employers are delaying hiring and investment plans.

The official payroll data released last week confirmed that the U.S. labor market is still cooling, with the unemployment rate edging up slightly in February. Job gains were under pressure, led by federal layoffs and losses in the retail sector.

Figures published by the U.S. Bureau of Labor Statistics do not yet signal a breakdown in the labor market but emphasize its continued slowdown. According to the February report, layoffs remained limited, but employers have become increasingly cautious about hiring, fueling concerns over labor market conditions.

The impact of federal layoffs was only partially reflected in the February report, and larger job losses are expected in the coming months. Economists predict that over half a million workers could lose their jobs this year due to the ripple effects of federal budget cuts. Given the uncertainty in the economy and employers' hiring delays, laid-off federal workers may find it more challenging to secure new jobs, potentially pushing the unemployment rate higher.

On Tuesday, a survey by the National Federation of Independent Business supported the narrative that business optimism is waning and spending plans are being postponed. Additionally, businesses plan to raise prices.

According to the survey, optimism among small businesses fell to a four-month low in February, while capital expenditure plans hit a five-year low. Seven out of ten components of the optimism index weakened, and economic outlook optimism saw its steepest decline since March 2022.

Meanwhile, the share of surveyed businesses planning to raise prices in the coming months surged to its highest level in nearly a year.

February CPI Report: A Key Test for Fed Policy and Market Sentiment

Later today, the February Consumer Price Index (CPI) report is set for release, and it is expected to show a slowdown after January's sharp increase. Forecasts suggest that the so-called core index, which excludes food and energy, slowed to 3.2% from the previous 3.3%, while the headline index rose 2.9%.

Economists attributed January's price increases to one-off adjustments made at the beginning of the year and projected that inflation would continue progressing toward the target level, albeit at a slow pace. As a result, market focus in recent weeks has shifted away from inflation fears toward concerns over economic growth, fueling speculation that the Federal Reserve might implement more rate cuts this year than previously anticipated.

However, inflation risks remain on the table---price pressures persist for essential goods, including food, and businesses intend to pass on cost increases to consumers as tariffs push expenses higher.

Many economists believe the February CPI report will provide the first signs of tariff-related impacts, particularly from the China tariffs that took effect at the beginning of the month. Additionally, companies' tendency to raise prices and wages in the first quarter poses an upward risk for the CPI.

On the other hand, low-income American consumers have become more pessimistic about their financial situation and job market prospects, leading to weaker demand for discretionary goods.

As the Duhani Capital Research team, we believe that declining demand could limit service price increases in the coming period, while bird flu and trade tariffs on major partners could continue to exert pressure on goods prices. The February report will likely reflect this divergence between the two components.

If the inflation report comes in higher than expected, concerns that the U.S. economy is sliding into stagflation could intensify amid rising growth risks. A weaker-than-expected reading would help alleviate inflation worries to some extent but would leave recession fears intact.

In either scenario, traders are likely to maintain their bets on Fed policy easing this year, keeping the U.S. dollar under pressure. However, given Fed officials' commitment to refraining from policy adjustments without seeing sustained progress on inflation, stronger inflation data could pull rate-cut expectations below 75 basis points, allowing the U.S. dollar to recover slightly from its lowest levels since November.

Traders will also closely watch tomorrow's Producer Price Index (PPI) report, which includes components that factor into the Fed's preferred inflation gauge and could influence market expectations.

Trump's Tariff Strategy Sparks Global Economic Concerns, Strengthening Gold's Safe-Haven Status

Trump's policies are not only impacting the U.S. economic outlook but are also casting a shadow over global economies. A survey conducted by S&P Global Market Intelligence, released on Tuesday, showed that global employers have scaled back hiring intentions amid uncertainty fueled by Trump's tariff policies. The global hiring outlook for February dropped to its lowest level since mid-2020.

The survey also reported layoff plans in the UK, Germany, France, and mainland China. Since taking office, Trump has imposed 20% tariffs on China, while European Union countries are facing tariff threats.

As of Wednesday, 25% global tariffs on aluminum and steel have come into effect, and additional tariffs on automobiles and other goods are set to be announced on April 2. Meanwhile, Trump has most recently targeted Japan's rice tariffs, placing Japan among the top countries on the retaliatory tariff list.

As a result, economic activity in countries facing tariff risks is also under threat, and it is unsurprising that import- and export-dependent businesses are postponing hiring and investment plans amid uncertainty. This suggests that Trump's policies could potentially put pressure on global economies. Under this scenario, global traders will likely flow into safe-haven assets, boosting gold's appeal.