U.S. stocks decline despite positive inflation figures, after Trump once again threatened China over trade policy.
Positive inflation figures were not enough to move U.S. stocks higher. On Friday, May 30, the Dow Jones fell 240 points, or 0.57%, while the S&P 500 dropped 60 points, or 1.00%. The tech-heavy Nasdaq suffered the most, losing 307 points, or 1.60%.
Markets were focused on President Donald Trump’s new threats against China’s trade policy. On May 30, Trump accused China of violating its agreement with the U.S., which had recently paused the 145% tariffs on Chinese imports. However, he did not specify what China did to violate the agreement.
“The bad news is that China, perhaps not surprisingly to some, HAS TOTALLY VIOLATED ITS AGREEMENT WITH US. So much for being Mr. NICE GUY!” Trump wrote.
Markets have been nervous over Trump’s trade policy ever since April 2, when Trump unveiled unprecedented tariffs on major U.S. trading partners. Despite a federal court striking down Trump’s tariffs on May 29, the ongoing uncertainty is contributing to a stock market pullback.
Tariffs spook Fed, despite slow inflation
The tariffs are also having a direct effect on Federal Reserve policy. According to a Morgan Stanley analyst, tariffs will certainly have an inflationary effect in the U.S., and the Fed knows this. For this reason, rates will likely remain the same, despite a positive inflation reading.
In April, core inflation rose 2.5%, its best reading since 2021. This is also the metric the Fed prefers to examine when setting monetary policy. Still, while tariffs haven’t yet had a measurable inflationary effect, the consensus remains that this is likely.
What’s more, the Fed has reiterated its wait-and-see approach on numerous occasions since April, when the tariffs took effect. For now, Chair Jerome Powell seems resistant to pressures by the White House to lower interest rates.