Trade tensions escalate as President Trump announces 25% tariffs on steel and aluminum imports, rattling global markets. At the same time, Fed Chair Powell maintains a cautious stance on rate cuts amid inflation concerns—with core inflation expected to reach 3.1%. Meanwhile, gold briefly hit a record high of $2,940 before retreating to $2,890, influenced by rising yields and increased safe-haven demand.

Trump's Tariff Announcement and Global Impact

• New Tariffs on Steel and Aluminum
  On Monday, President Donald Trump signed an executive order imposing a 25% tariff on all steel and aluminum imports from every country. The tariffs, set to take effect on March 12 at 12:01 AM Washington time, are intended to support domestic production and boost job creation in the U.S.

• Wider Economic Strategy
  The tariffs form part of a broader economic strategy that may signal further increases. Major trading partners—including Canada, which supplies 23% of U.S. steel and 58% of aluminum imports, as well as Mexico and several Asian countries—face significant pressure. Although Trump initially announced universal application, there is speculation that negotiations could lead to exemptions for certain countries.

• Potential Exemptions and Expanded Scope
  Following discussions with leaders such as Australian Prime Minister Anthony Albanese and requests from Tokyo, exemptions for Australia, Japan, and potentially Mexico are being considered. Unlike previous measures that focused solely on raw materials, the new tariffs will also cover processed goods (e.g., automobiles, window frames, construction and military equipment, and beverage cans), raising concerns about higher consumer prices in the U.S.

• Reciprocal Tariff Plans
  Additionally, Trump indicated plans to introduce reciprocal tariffs on countries that impose taxes on U.S. imports. Bloomberg Economics suggests that if implemented, these moves could deliver significant economic shocks to regions like South America, Africa, and South Asia, while tensions with the European Union may also escalate.

Federal Reserve Policy and Inflation Uncertainty

• Powell's Cautious Approach
  Federal Reserve Chairman Jerome Powell reiterated during his Senate testimony that the central bank would maintain a patient approach in adjusting monetary policy. With the current stance being less restrictive, Powell emphasized that there is no immediate urgency to change policy, even as inflation concerns persist.

• Inflation Data and Market Expectations
  Recent economic reports show core inflation, which excludes food and energy, is expected to be around 3.1% on an annual basis for January. Although the Producer Price Index (PPI) and other indicators have signaled higher inflation, some analysts believe seasonal factors are at play. Nevertheless, the uncertainty—exacerbated by Trump's trade policies—has led traders to reassess expectations for rate cuts, with fewer than two cuts priced in for 2025.

• Other Influencing Factors
  Additional pressures, such as wildfires in Los Angeles, have contributed to localized price increases. Overall, the inflation data and forthcoming revisions to seasonal adjustment factors are likely to keep the Fed in a wait-and-see mode.

Gold's Record Run and Subsequent Retreat

• Record High Followed by a Decline
  Gold prices surged to a record $2,940 before retreating to around $2,890. The initial spike was driven by safe-haven demand amid escalating trade tensions and economic uncertainties.

• Impact of Rising Yields
  Federal Reserve Chair Powell’s comments on maintaining a cautious policy stance led to a rise in U.S. Treasury yields, which generally exerts downward pressure on non-yielding assets like gold.

• Balancing Act of Market Forces
  While higher yields have negatively impacted gold, Trump's unpredictable trade policies—and even his immigration policy proposals, which some analysts claim could reduce U.S. GDP—continue to fuel safe-haven demand. As such, the downside for gold appears limited, with traders keeping a close eye on further inflation data.

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