Markets respond sharply to Trump's tariff suspension
American financial markets are reacting with declines on Thursday. A day after Donald Trump announced the suspension of tariffs on most countries, the major stock indices in the US recorded lower values, and the uncertainty index clearly increased, reflecting investors' concerns.
On Thursday, the Dow Jones Industrial Average fell by 2.42% (981 points), reaching a level of 39,627 points. The S&P 500 lost 2.99% (163 points), ending the session at 5,294 points. The strongest reaction was seen in the Nasdaq Composite, which plunged by 3.61% (619 points), closing at 16,506 points. At the same time, the VIX index (known as the uncertainty index) increased by 7.56% (3 points), reaching 36 points.
Mood across the ocean was different from that in Asia and Europe, where both continents' stock exchanges recorded gains. Importantly, throughout the day, investor sentiment did not significantly worsen. The WIG20, DAX, CAC, and IBEX recorded solid increases at levels of 4-5%.
Fed concerned about the impact of tariffs on inflation
Jeffrey Schmid, president of the Federal Reserve in Kansas City, expressed concern on Thursday about the potential impact of planned tariffs on inflation. Despite Donald Trump postponing the most aggressive measures for a 90-day negotiation period, the Fed representative emphasized that the current situation might differ from the standard approach, where tariffs are seen as a one-time price increase rather than a fundamental inflation driver.
On Thursday, Schmid highlighted the experiences of the 1970s and 1980s, warning that cutting rates too soon in reaction to weakening data — before fully controlling inflation — risks embedding inflation into expectations and the price-setting mechanisms.
Schmid, who is a voting member this year on the Federal Open Market Committee (FOMC) setting interest rates, did not outline a specific path for future rate decisions. His comments, however, reflect the stance of other Fed policymakers, who are adopting a wait-and-see approach, observing how tariffs will impact the economy.
Market reactions to Trump's plans
The sell-off on American stock markets shows that investors are taking the new administration's trade policy announcements seriously. Technology companies, in particular, are reacting strongly, as they are heavily dependent on global supply chains and international trade, which explains the deeper declines in the Nasdaq index compared to other indicators.
The increase in the VIX index, often called the "fear index" on Wall Street, suggests growing uncertainty among market participants regarding the future economic situation. Investors are concerned that the announced tariffs may lead to escalating trade tensions, disruptions in global supply chains, and potentially higher prices for imported goods, which could ultimately affect the inflation level in the United States.
