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The Fed’s in a bind

The steepest tariff rollout in a century just handed the stock market its worst day since 2020.

President Trump’s trade agenda erased $3 trillion in market value Thursday as investors raced to reprice risk. The S&P 500 fell 4.8% and the tech-heavy Nasdaq dropped nearly 6%. 

But while Wall Street took the levies to the chin, the Federal Reserve quietly inherited its most precarious policy puzzle yet. 

In short, “Liberation Day” arrived at a delicate moment for the US economy. 

The growth outlook has deteriorated, recession odds have ballooned, and inflation expectations among both consumers and economists have creeped higher.

Meanwhile, the labor market is showing signs of strain. Analysts polled by FactSet expect the March jobs report, due this morning, to show unemployment rising to 4.2% for the first time since November.

March payrolls are expected to come in at 140,000, down from February’s 151,000. 

Yet despite the softening data, Jerome Powell is stuck. 

Markets are pricing in three rate cuts this year. But tariffs complicate that path, injecting inflation risk at the exact moment growth appears to be stalling. 

Cut too soon — especially with tariffs up in the air — and the Fed could reignite inflation. Wait too long, and the economy could tip into a recession, regardless of a trade war.

Here’s Powell’s problem. If the latest jobs data confirms cracks in the labor market, Powell could be seen as negligent for doing nothing.

But cutting while inflation expectations are rising also undermines the Fed’s credibility and threatens long-term price stability. 

None of this seems to bother President Trump, who reiterated Thursday that “markets are going to boom.”

“It's the unknown unknowns that can lead to severe confidence shocks,” noted Bank of America strategist Savita Subramanian. “Shocks that shift goals from generating alpha to staying liquid and ‘getting to the other side.’”

The Fed has navigated crossroads before, but rarely one this fraught. A trade-driven inflation scare on one side, a downturn caused by inaction on the other. 

But which is worse? Which is real? That’s Powell’s call. 

He’ll soon have to decide which side of the economy he’s willing to sacrifice first.

Market snapshot

Elsewhere:

🤝 President Trump is open to tariff negotiations. He said Thursday he would discuss with countries that offer something “phenomenal,” and as long as they are giving the US something “that’s good.” Trump added that the rollout was going “very well” so far. (Yahoo Finance)

📈 JPMorgan raised its recession odds to 60%, up from 40% before. The bank sees tariffs as a risk to a global recession. Analysts said retaliatory tariffs by other countries, weakening business sentiment, and supply chain disruptions could all make things worse. (WSJ)

🍎 Tariff news has throttled Apple stock. Its exposure to China means it could take a potentially worse hit than other large technology companies, and demand for its products could also sink. The iPhone maker is tightly integrated into the global economy, both its supply chain and worldwide customer base. (Barron’s)

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Rapid-fire:

• The market turmoil has delayed StubHub’s IPO (WSJ)

• A conservative legal group filed a lawsuit seeking to block Trump’s tariffs on Chinese imports (Reuters)

• US tariff rates under Trump, if they do not change from his initial plan, will be higher than Smoot-Hawley levels from a century ago (CNBC)

• Wall Street wanted clarity, but Trump’s “Liberation Day” delivered escalation (Opening Bell Daily)

• Anthony Pompliano makes the case why tariffs will strengthen the US economy (Pomp Letter)

Last thing:

About me:

📰 I’m Phil Rosen, co-founder and editor-in-chief of Opening Bell Daily. I’ve published books, lived on three continents, and won awards for my journalism, which has appeared in Business Insider, Fortune, Yahoo Finance, Bloomberg and Inc. Magazine.

I write our flagship newsletter to prepare you for each trading day, unpacking markets, economic data and Wall Street with analysis you won’t find anywhere else. Feedback? Reply to this email, ping me on X @philrosenn, or write me directly at [email protected].