Last Week on Wall Street – April 18th, 2025

S&P 500: -1.5% DOW: -2.66% NASDAQ: -2.31% 10-YR Yield: 4.33%

What Happened?

Markets faltered this week as early optimism for a rebound in U.S. equities quickly gave way to renewed uncertainty on multiple fronts.

Investor sentiment was rattled after Federal Reserve Chair Jerome Powell struck a notably cautious tone on monetary policy, pushing back against expectations for near-term rate cuts. Instead, Powell emphasized a “wait-and-see” approach in response to the uncertain economic impact of ongoing trade tensions – a stance that appeared to frustrate President Trump, who publicly criticized the Fed chair and reignited speculation about his possible removal.

On the trade front, President Trump claimed a deal with the European Union was in the works, though he offered no timeline or specifics. He was more definitive regarding a pending U.S.-Ukraine minerals agreement, stating it would be signed next week. However, markets remained skeptical amid a broader pattern of shifting tariff policies, which have continued to weigh on confidence in the U.S. dollar, now marking its third straight week of declines.

Beyond the headlines surrounding tariffs and the Fed, we’ll also explore key economic data, including better-than-expected retail sales, and examine implications from the European Central Bank’s recent policy shift. All told, the week highlighted the growing tension between monetary policy, trade uncertainty, and global market reactions.

Powell Takes the Wait and See Approach to Monetary Policy

Powell said Wednesday that the central bank could find itself in a dilemma between controlling inflation and supporting economic growth
Powell gave no indication on where he sees interest rates headed, but noted that, “For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance.”
The more hawkish stance sent equity markets lower

The key takeaway – The Federal Reserve finds itself in a difficult position as inflation projections climb while economic growth slows, a textbook case of stagflation. With tariffs acting as a de facto tax on consumption and business inputs, Chair Jerome Powell acknowledged that the Fed’s dual mandate of full employment and price stability may soon be at odds. While Powell emphasized a patient, wait-and-see approach until there is greater clarity, markets read his tone that the Fed would not step in to bolster markets.

The patience may prove problematic. It seems that Jerome Powell leans more towards the risk to inflation than growth. Yet, if the Fed waits for hard data to confirm a meaningful slowdown, it could miss the window to respond proactively -mirroring the delayed response to rising inflation in 2021. The real-time effects of tariffs, supply chains, and mounting global uncertainty suggest that monetary policy is already lagging behind events. Powell’s remarks reflect the Fed’s constrained position: unable to ease without risking unanchored inflation expectations, yet hesitant to tighten further in the face of softening growth.

Adding to the tension is President Trump’s growing frustration with Powell. According to the Wall Street Journal, Trump has for months been privately discussing the possibility of firing the Fed Chair. Any such effort would almost certainly lead to a legal battle in the Supreme Court, casting a cloud over Powell’s potential replacement. Even the perception that a Fed chair could be ousted over a policy disagreement would likely shake investor confidence.

ECB Cuts Interest Rates to Counter Threat From Trump Tariffs

The European Central Bank cut interest rates by .25%.
Decision was prompted by a fear in economic growth slowing down.
Now the largest gap between US rates and the ECB in over two years at 2 percentage points.

The key takeaway – In a decisive move reflecting mounting concerns over global trade tensions, the European Central Bank (ECB) has reduced its main deposit rate for the seventh rate cut within a year. This action aims to bolster the eurozone economy, which faces headwinds from escalating tariffs and associated uncertainties. ECB President Christine Lagarde emphasized that the “major escalation in global trade tensions and the associated uncertainty will likely lower euro area growth by dampening exports,” potentially dragging down investment and consumption.

The ECB’s decision highlights the challenges posed by recent trade policies, particularly those involving increased tariffs. Such measures have introduced significant uncertainty, affecting business confidence and financial conditions across the euro area. Lagarde noted that the economic outlook is clouded by “exceptional uncertainty,” citing “new barriers to trade” as a contributing factor.

The implications of the ECB’s rate cut extend beyond Europe, potentially influencing the United States. A lower euro could strengthen the U.S. dollar, making American exports more expensive and potentially widening the trade deficit. Moreover, the ECB’s proactive stance may increase pressure on the U.S. Federal Reserve to consider similar measures, especially if global economic conditions continue to deteriorate. President Trump has already criticized Fed Chair Jerome Powell for not lowering interest rates in line with the ECB, highlighting the interconnectedness of global monetary policies.

As the ECB navigates these turbulent economic waters, its actions serve as a barometer for global financial stability. The interplay between trade policies and monetary decisions will be crucial in shaping the economic landscape in the coming months, both in Europe and across the Atlantic.

US Retail Sales Rise As Shoppers Brace for Trump Tariff Impact

Sale surge to reach 26-month high, increasing by 1.4%.
Consumers are pre-purchasing goods to avoid the expected cost of implemented tariffs.
March sales rose mostly in-part to an 54.3% increase in automobile sales.

The key takeaway – The latest retail sales report came in hotter than expected, marking the biggest jump since 2023. Leading the charge? Autos. The kind of large-ticket item you finance over years, not months. So why the sudden rush?

Enter tariffs. With the Trump administration unveiling sweeping trade measures, including a 10% blanket tariff and a targeted 25% hit on foreign-made cars, consumers appear to be racing to buy before the rules of the road get rewritten. If you believe tariffs will hike input costs, which in turn will jack up sticker prices, the play is simple: buy now, save later.

Whether by design or coincidence, it feels a lot like a national BOGO sale – Buy One Get Out Before the Price Hikes. The question is whether President Trump is intentionally nudging Americans into early purchases as part of a broader psychological strategy. More likely, this reflects the opening move in a larger effort to restructure global supply chains and reassert U.S. manufacturing independence.
And it wasn’t just autos. Restaurant and bar sales are also accelerating, with economists projecting an increase of up to 1.8%. For a country heavily reliant on its service sector, that’s more than a minor detail, it suggests consumer confidence may be stronger than expected. Historically, increased discretionary spending at restaurants and bars often signals that consumers feel more secure about their financial standing and the value of their dollar.

It’s also important to note that this report predates Trump’s April 2nd announcement of “Reciprocal Tariff Day,” now dubbed “Liberation Day” on Capitol Hill. The effects of that policy shift have yet to be reflected in the data, adding another layer of potential volatility. Markets and economists alike will be watching closely in the months ahead to gauge its full impact.