Key points
- Global markets have demonstrated surprising resilience despite significant policy uncertainty under the Trump administration.
- Fears of a major trade war have not materialized, as trade deals have been reached and tariffs have been less severe than initially predicted.
- The Federal Reserve’s independence has remained largely intact, despite Trump’s attempts to influence its decisions.
- Growth forecasts have been revised upwards in several major economies, including the Eurozone and Spain.
The global economy has defied expectations during the tumultuous first eight months of the Trump presidency, exhibiting remarkable resilience in the face of significant policy and political uncertainty. Despite dramatic shifts in US trade policy, including threats of massive tariffs and a battle for control of the Federal Reserve, global equity and bond markets have surged, and economic activity has remained robust. This contrasts sharply with initial predictions of recession and a collapse in global trade.
One of the key factors contributing to this unexpected stability has been the avoidance of a full-blown trade war. While tariffs have been implemented, they have been less severe than initially feared, and deals have been struck with key trading partners in Europe and Asia. This more moderate approach, coupled with a sharing of the tariff burden among exporters, importers, and consumers, has resulted in a manageable economic impact.
Furthermore, Trump’s attempts to exert influence over the Federal Reserve, including efforts to remove the Fed Chair and a governor, have been unsuccessful so far. Financial markets have seemingly discounted the risk of increased White House control over monetary policy, at least for the time being.
The yield on the 10-year US Treasury note, a key indicator of investor confidence, has even fallen since Trump took office, suggesting a lack of widespread loss of faith in the US economy or the Fed’s independence. The Fed itself has recently cut its benchmark interest rate, reflecting confidence in meeting its inflation target.
This period of relative calm has provided a much-needed respite for other major economies. Positive economic news has emerged from various regions, with upward revisions to growth forecasts across the Eurozone, particularly in Spain and Germany, and continued strength in emerging markets such as Brazil, Mexico, and India.
The Bank of Spain, for example, recently raised its 2025 growth forecast to 2.6%, and Germany anticipates significant growth fueled by large-scale public spending. Despite this positive outlook, analysts acknowledge that the current stability may be precarious, potentially masking underlying vulnerabilities.
The delayed impact of tariffs, concerns about the US labor market, and the possibility of unforeseen future policies contribute to an ongoing sense of uncertainty. While the global economy currently enjoys a period of relative calm, the underlying fragility and potential for long-term economic adjustments remain significant risks.
