This week, US equity indexes experienced a downturn as new guidance from the Federal Reserve indicated a need to remain patient for further insights regarding the effects of fiscal policy decisions. This cautious stance was unable to mitigate a strong sell-off earlier in the week triggered by data hinting at economic weakness, while the imposition of trade tariffs has further contributed to market anxiety. The S&P 500 index ended the week at 5,770.20, showing a decline from 5,954.50 the previous week.
Similarly, the Nasdaq Composite index closed at 18,196.22, down from 18,847.28 a week prior. The Dow Jones Industrial Average concluded the week at 42,801.72, a decrease from 43,840.91 a week earlier, highlighting a trend of volatility in the market. In a statement, Fed Chair Jerome Powell reassured investors of the central bank's readiness to utilize monetary policy tools as necessary.
He stated, "If the economy remains strong but inflation does not continue to move sustainably toward 2%, we can maintain policy restraint for longer. If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can ease policy accordingly," emphasizing the Fed's dual mandate to promote maximum employment and stable prices. Moreover, the nonfarm payrolls report presented disappointing results, showing a rise that was less than anticipated for February, coinciding with an uptick in the unemployment rate.
Analysts from TD Economics predict that economic growth may continue to decelerate in the coming months as federal layoffs rise and ongoing uncertainties around trade policy influence hiring intentions. Layoff announcements hit a high of 172,017 jobs in February, marking the highest monthly figure since July 2020, primarily driven by cuts in the government sector, according to outplacement firm Challenger, Gray & Christmas. The market's unease was further exacerbated by the Trump Administration's indecision regarding tariffs imposed on Canada and Mexico.
President Donald Trump recently delayed the implementation of 25% tariffs on goods subject to a free-trade agreement among the three countries until April 2, casting shadows on corporate supply costs. In a report, Morgan Stanley revised its projections for US economic growth downward for 2025 and 2026, citing shifts in economic conditions.
The firm forecasts higher inflation rates in 2025 and a more accelerated recovery in goods prices, stating, "The mix of firm inflation and low unemployment could put the Fed in a bind," potentially leading to complex policy decisions ahead..