Tariffs, Markets, and Metrics: Why Big Money Is Waiting
Several economists and economic analysts have adopted a cautious, observational stance regarding the effects of the recent tariffs implemented by the Trump administration as of April 5, 2025. While few use the phrase “wait and see” explicitly, many institutional responses imply this approach:
- Federal Reserve Chair Jerome Powell
In early 2025, Powell stated the Fed was in “no hurry to cut rates” and would monitor inflation progress and labor market conditions. This suggests a “wait and see” posture—watching how tariffs affect inflation and growth before adjusting monetary policy. - Goldman Sachs Economists (Jan Hatzius)
Goldman Sachs adjusted its forecasts but emphasized ongoing uncertainty around implementation, exclusions, and negotiation outcomes. Their reports suggest they are reserving judgment until more is known. - Russell Investments’ Strategists
In February 2025, Russell noted the Fed might adopt a wait-and-see stance on monetary policy due to the unclear downstream effects of tariffs. This reflects a broader preference for real-time observation over speculative modeling. - JPMorgan (Bruce Kasman)
JPMorgan raised its recession odds to 60% if tariffs proceed but noted: “We’re not making immediate changes to our forecasts and want to see the initial implementation and negotiation process.” A textbook case of caution.
Summary:
Rather than rushing to firm conclusions, leading economists are watching key data points—especially inflation, wages, and consumer spending—before revising models. The complexity of tariff outcomes and risk of retaliation require real-time observation over short-term prediction.
Major Stock Market Indices as an Indicator of Economic Health
Stock indices like the S&P 500, Dow Jones, and Nasdaq often serve as barometers of economic sentiment. But are they reliable indicators of actual economic health?
What Stock Indices Reflect
- Indices reflect investor expectations, corporate earnings forecasts, and general market sentiment.
- They’re coincident indicators—responding in real-time to events, such as interest rate guidance or policy announcements.
- For example, on April 4, 2025, the S&P 500 fell sharply after the tariff rollout, erasing $2 trillion in value—showcasing investor reaction, not long-term fundamentals.
Limitations of Stock Indices
- Stock performance does not measure:
- National production
- Job growth
- Consumer purchasing power
- Indices can diverge sharply from public experience. For instance:
- Consumer sentiment hit a two-year low in March 2025.
- Yet stock indices remained elevated through Q1 before the tariff news.
Comparing with GDP
- GDP measures total economic output and provides a broad, stable snapshot of national economic activity.
- Real GDP (adjusted for inflation) is a lagging indicator, typically released quarterly, but with depth and clarity.
- While stock markets dropped in early 2025, Q4 2024 GDP rose by 2.3%, suggesting more resilience than markets implied.
Comparing with Inflation
- Inflation metrics (CPI, PCE) measure cost-of-living impacts.
- Economists like Goldman Sachs predict core PCE inflation will reach 3.5% in 2025 due to tariffs.
- This matters more to real households than market volatility—purchasing power and consumer behavior are shaped by prices, not share prices.
Expert Perspectives
- Many analysts argue that stock indices track market psychology, not structural health.
- A University of Chicago survey in January 2025 showed businesses were:
- Raising prices
- Stockpiling inventory
- Delaying investments
- These trends—driven by tariff fears—are better reflected in inflation and GDP data than stock swings.
- Historical data (1963–2014 across 151 countries) shows tariffs consistently reduce GDP growth, a lagging but powerful signal often missed by equity markets until after the fact.
Conclusion
Investment managers’ preference for GDP and inflation isn’t just conservative—it’s strategic. These indicators offer a more grounded, less reactive portrait of economic health than major stock indices.
- Stock indices are useful for capturing sentiment and early signals.
- GDP and inflation capture the material impact of policy shifts—especially ones as complex and slow-burning as tariffs.
Right now, leading economists from the Fed, JPMorgan, and others are watching, not betting. That caution is telling.
The market screams. But the economy hums.
And sometimes, what matters most is the signal under the noise.