Dem
47
GOP
53
Donald Trump may seem invulnerable, but even he has an Achilles heel: the economy. His base doesn't care much for democracy, but it does care about the cost of milk and eggs and, for people whose future is tied up in their 401(k) account, the stock market. If the economy goes south, Trump's base will notice.
On Friday, the stock market took a tumble. The Dow Jones lost 715 points (1.7%). The S&P 500 lost 2%. The NASDAQ was hit the hardest, down 2.7%. The slide began just after the Dept. of Commerce released a report showing a year-to-year price increase of 2.5% (but 2.8% when food and energy are excluded). Core personal consumption expenditures were up 0.4% month to month, which if continued for 12 months, would be 4.8% annually.
The market noticed. Here is a graph of the S&P 500 for the past 6 months. The high point was $6,144 on Feb. 19. It closed at $5,581 Friday, down 9.2% from the high and likely still falling. Basically, the markets were flat while Trump v2.0 was gearing up, but when the administration started doing things, the market headed south.
James Knightley, chief international economist at AIG, said: "We are moving in the wrong direction and the concern is that tariffs threaten higher prices, which mean the inflation prints [the data sheets released by the government] are going to remain hot. This will constrain the Fed's ability to deliver further interest rate cuts." And don't forget, Wednesday is T-day, when the new tariffs kick in (unless they don't).
Consumers are worried. The University of Michigan survey of consumer sentiment reported that consumers expect 5% inflation in the coming year, the highest since 2022. When people expect high inflation, often they hoard their pennies for tough times ahead. Decreased consumer spending can tank the economy, and once these things get rolling, it is hard to stop them. The Fed can try to prevent a recession by cutting interest rates, but they hate to do that when inflation is looming. Jerome Powell may well be the right person to steer the economy, but Trump has signaled that he wants to can Powell. If he follows through and manages to do it, the markets are sure to react negatively. (V)