The Morning Edge: Trump Tariffs To Slow Inflation Progress, Weigh On Growth, Says Fed Powell

 Federal Reserve Chair Jerome Powell acknowledged on Wednesday that President Donald Trump’s initial policies, including sweeping import tariffs, have likely steered the US economy toward slower growth and temporarily higher inflation. Speaking after the Fed held its benchmark interest rate steady at 4.25%-4.50%, Powell highlighted the “unusually elevated” uncertainty surrounding the economic outlook, with prices now expected to rise faster than previously anticipated, partly due to Trump’s tariff plans. 

Despite the inflationary pressures, Fed policymakers maintained their forecast for two quarter-point rate cuts by year-end, attributing the decision to weakened growth and the “inertia” of navigating a murky economic landscape. Powell’s remarks underscored the challenges facing the central bank as it balances conflicting signals from trade policies, inflation, and growth.

Data
The US Fed announced on Wednesday that it will slow the pace of its balance sheet reduction starting next month, amid an impasse over the government’s borrowing limit. Effective 1 April, the monthly cap on Treasury securities allowed to mature without replacement will be reduced to $5 billion, down from the previous $25 billion cap, while the cap for mortgage-backed securities will remain at $35 billion. This shift, hinted at in the January FOMC meeting minutes, reflects a more cautious approach to quantitative tightening. The move signals the Fed’s focus on maintaining financial stability amid ongoing fiscal and economic uncertainties.

Markets
Overnight
US stocks indices surged on Wednesday as the Federal Reserve held interest rates steady and maintained policy rate cut forecast for 2025, aligning with market expectations, while investors and policymakers continued to assess the economic and inflationary impact of President Donald Trump’s tariff policies. The rally gained momentum during Fed Chair Jerome Powell’s press conference, where he noted it was too early to fully gauge the inflationary effects of tariffs or determine how much price increases could be attributed to the levies. Boeing led the charge, jumping 6.84% after stating it did not expect near-term tariff impacts, while all 11 S&P 500 sectors advanced, with consumer discretionary stocks leading the pack with a nearly 2% gain.

US Treasury yields retreated on Wednesday after the Federal Reserve lowered its economic outlook for the year and raised inflation expectations, citing the impact of President Donald Trump’s tariff policies. Policymakers also signalled plans to cut the Fed funds target rate by 50 basis points this year, prompting a pullback in yields. The yield on benchmark 10-year notes fell 3.3 basis points to 4.249%, while the 30-year bond yield dropped 2 basis points to 4.5593%. Meanwhile, the 2-year note yield, which closely tracks Fed rate expectations, tumbled 6.3 basis points to 3.979%, reflecting growing bets on a dovish pivot amid economic uncertainty.

The US dollar pared some gains after the Fed kept interest rates unchanged but signalled plans to cut policy rate by half a percentage point this year. The dollar index edged up 0.18% to 103.49, while the euro slipped 0.39% to $1.09. Against the Japanese yen, the dollar weakened 0.26% to 148.87. Investors remain cautious as they assess the Fed’s outlook and its potential impact on currency markets.

Brent crude oil prices edged higher on Wednesday after US data revealed a decline in oil inventories, signalling tighter supply. Brent rose 0.31% to $70.78. Meanwhile, markets remained focused on the limited Russia-Ukraine ceasefire, with geopolitical uncertainties adding to oil price volatility. Investors continue to weigh supply risks against broader economic concerns.

Day’s Ledger
Economic Data:
- US Weekly Initial Jobless Claims Data
- US Oct-Dec Current Account Data
- US February Existing Home Sales Data
- Philadelphia Fed March Manufacturing Index

Corporate Actions:
-Tata Motors board to consider private placement of secured/unsecured NCDs.
- TVS Motors Co board to consider dividend
- Indian Bank board to discuss fundraising plans
- Ugro Capital board to discuss fundraising plans
- Manappuram Finance board to discuss fundraising plans

Policy:
- European Union Leaders Summit
- European Central Bank President Lagarde Speaks
- European Central Bank's Lane Speaks
- Bank of England interest rate decision

Tickers

• ADANI ENTERPRISES’ subsidiary, Kutch Copper will hold a 50% equity share capital in Praneetha Ecocables.
• AVENUE SUPERMARTS invests ₹1.75 billion in Avenue E-Commerce for operational and capital needs.
• CAN FIN HOMES has relieved Apurav Agarwal, Chief Financial Officer (CFO), from the services effective March 19, following his resignation due to personal reasons. 
• DHANLAXMI BANK board has approved raising up to ₹1.50 billion via the issue of non-convertible debentures 
• EVEREADY INDUSTRIES plans ₹1.8 billion investment for India’s first alkaline dry cell plant in Jammu
• HYUNDAI MOTOR INDIA hikes car prices by up to 3% from April due to rising costs.
• MISHRA DHATU NIGAM board has approved an interim dividend of ₹0.75 per equity share for the financial year 2024-25.
• NHPC Board has approved a borrowing plan for raising debt of up to ₹63 billion during 2025-25 through non-convertible debts.
• Nawaz Modi Singhania has resigned as a Non-Executive Director of RAYMOND, effective March 19.
• WIPRO announced new agentic AI services with the NVIDIA AI Enterprise platform to assist nations and local governments in building and deploying AI agent services tailored to the needs of their languages and cultures.

Must Read

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• India moves WTO against EU’s new steel safeguards, fears trade impact
• SEBI bars former TV host, two others for five years
• Cabinet approves incentive scheme for low-value UPI transaction
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• Saudi Aramco-backed Cognite opens AI services centre in Bengaluru
• SoftBank to acquire chip designer Ampere in $6.5 billion deal
• Google, Apple hit with EU antitrust actions under cloud of Trump tariff threats
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