Investing.com - Despite the market selloff spawned by worries that President Donald Trump’s stance on tariffs could mark the beginning of trade wars that could damage the global economy, markets appeared convinced on Friday that the volatility wouldn’t derail the Federal Reserve’s plans to forge ahead with its plans for gradual rate hikes this year.
Trump indicated Thursday that the United States would impose import tariffs on steel and aluminum, raising concern about higher prices and a trade war.
Amid scarce details, Trump said duties of 25% on steel and 10% on aluminum would be formally announced next week, sparking concerns of retaliatory moves from major trade partners such as China, Europe and neighboring Canada.
Despite a backlash of criticism from foreign leaders and companies both inside and outside the U.S., Trump doubled-down on Friday with a string of tweets insisting on the need for America to pursue fair trade deals.
The President shrugged off worries, insisting that “trade wars are good, and easy to win”.
As the international outcry continued, Trump insisted that the U.S. had to “protect our country and our workers”.
He added that he planned to implement “reciprocal taxes”, implying that he would raise tariffs to an equal level with countries that the U.S. traded with.
Even as the Dow plummeted more than 300 points on Friday, turning negative for the year, Fed fund futures retained bets that the Fed would move ahead with plans for the removal of accommodative policy despite the market upset and potential damage to the American economy.
According to Investing.com’s Fed Rate Monitor Tool, odds for a rate hike at the upcoming March 20-21 meeting –in what would be the first under newly appointed Fed chairman Jerome Powell- remained above 80%.
Likely buoyed by speculation that potential trade wars involving rising tariffs would fuel inflation stateside, forcing the U.S. central bank to stay on its tightening course, markets continued to agree with the Fed’s own projection of three rate hikes in 2018, with the probability holding above 70%.
Prior to the shift in attention to Trump’s tariff stance, Fed chair Powell roiled markets on Tuesday when he reiterated in testimony to the House that he planned to push forward with rate increases as the American economy had strengthened since the December projections.
Powell’s follow-up testimony to the Senate on Thursday that he saw no signs of the economy overheating did little cool speculation as the outgoing New York Fed president William Dudley said the same day that four interest-rate hikes this year would still constitute a "gradual" tightening.
The shift of focus to Trump’s plans for tariffs next week will likely overshadow market attention to the March 9 publication of the monthly nonfarm payrolls report that includes wage inflation or the March 13 inflation reading.