The recent meeting of the Federal Reserve (Fed) and Jerome Powell's speech again confirmed: monetary policy is in a kind of 'pause'. Key points from the Fed chair's speech:
• Economic uncertainty has increased
• The economy remains strong, but inflation has started to rise again
• Trade tariffs may increase inflationary risks
• Starting April 1, the Fed is reducing the pace of balance sheet reduction (QT) from $25 billion per month to $5 billion
What does this mean for the markets and the economy?
Many analysts and bloggers were quick to claim that the slowdown in QT is a positive signal. However, this is not entirely true. Let's break it down.
Since the end of the quantitative easing (QE) program, markets have continued to rise despite relatively high interest rates. This means that today, the Fed's policy is more likely to influence short-term investor sentiment than actual economic processes. Stock markets can both rise and fall regardless of QT or QE.
A more important factor remains uncertainty in the economy. The U.S. continues to show growth, but the pace is slowing. The main reason is Donald Trump's trade policy. If his team truly sees tariff wars as a tool to strengthen the economy, the consequences could be dire.
What's next? Is a recession possible?
If Trump is intentionally leading the economy into a downturn, it is a strategic mistake. After 2020, government spending provided a strong boost for growth that could have lasted another 1–2 years. However, if a recession starts now, it will lead to the following:
• The positive effect of government spending (economic growth and stock market growth) will be lost
• The negative effect (inflation) will remain
In other words, the U.S. risks getting the worst possible scenario. In the coming months, it will become clear whether the current policy is part of a long-term plan or simply mistakes that will lead the economy into a downturn.
