[MACRO Trends] The "crossroads" dilemma under Trump's tariff policy - the choice between rising inflation expectations and interest rate cuts

Recently, the economic situation in the United States has become complex, with factors such as rising inflation expectations, declining consumer confidence and fluctuations in the gold market intertwined, bringing a lot of uncertainty to the economic outlook. Chicago Federal Reserve Bank President Goolsbee warned that investors in the U.S. bond market are pricing in higher inflation, which would be a "major danger signal" that could derail policymakers' plans to cut interest rates.

A University of Michigan poll showed that American households' long-term inflation expectations have hit their highest level since 1993. Goolsbee stressed that if investors' expectations converge with those of American households, the Fed must take action because once people lose confidence in the central bank's ability to control inflation, a vicious cycle of rising wages and prices could occur.

Although the Federal Reserve raised its inflation forecasts and lowered its economic growth forecasts last week, Chairman Powell still expressed confidence that inflation expectations will be kept under control. However, the five-year interest rate, an indicator of market expectations for price growth over the next five years, has reached 2.2%, while respondents to the University of Michigan's consumer sentiment survey expect long-term inflation to be 3.9%. This suggests that the Fed faces greater pressure in controlling inflation expectations.

It can be said that the Fed is no longer on the "golden path" of 2023 and 2024, when inflation moved closer to the 2% target without disrupting economic growth. Now the economy has entered "another chapter" and faces more uncertainties. Fed officials had forecast two 25 basis point rate cuts this year, but last week's meeting kept rates unchanged for the second straight time, with Powell acknowledging that progress on inflation could be delayed.

U.S. consumer confidence fell to a four-year low in March amid concerns that the Trump administration's escalating tariffs would lead to higher prices and an uncertain economic outlook. The Chamber of Commerce's consumer confidence index fell 7.2 points to 92.9, and expectations for the next six months fell to 65.2, the lowest level in 12 years. Consumers' optimism about future income has largely disappeared, and concerns about the economy and the labor market are beginning to affect their assessment of their personal situations.

In a University of Michigan survey, U.S. consumers' expectations for inflation over the next year rose to their highest level in two years. The question facing economists and Federal Reserve policymakers is whether the weak sentiment trend will translate into a pullback in actual spending, as consumers face persistent inflation, high borrowing costs and a weak job market.

Gold prices have risen 15% this year as the escalating trade war has sparked safe-haven demand. Although gold rose slightly in the short term after the data was released, it then fell back to around $3,030. Investors are concerned about global developments, especially U.S. policies, and are buying gold as an alternative asset to hedge against the risk of a global recession that could be triggered by the U.S. government.

Daniel Pavilonis, senior market strategist at RJO Futures, said that the possibility of a Fed rate cut has decreased, and overall, anti-inflation metals such as gold are still bullish, and the next level is expected to be around $3,125. Some experts pointed out that the next three to six weeks will be a critical period for resolving a series of policy uncertainties, and April 2, the "Liberation Day" when Trump plans to impose reciprocal tariffs on US trading partners, has attracted much attention. Business executives expressed concern about uncertainty surrounding the tariffs, including their size, exemptions and impact on the auto industry.

Although "soft data" such as sentiment indexes were clearly sluggish, "hard data" showed that the economic foundations remained solid, with low unemployment, a rebound in manufacturing activity, and inflation easing last month. However, economists closely monitor changes in labor market indicators, such as the gap between the proportion of consumers who think there are plenty of job opportunities and those who think jobs are hard to find, which rose to 17.9%.

To sum up, the United States is currently facing multiple challenges, including rising inflation expectations, declining consumer confidence, and volatility in the gold market. The Federal Reserve faces a difficult choice between balancing economic growth and inflation control, and Trump's tariff policy has further increased economic uncertainty. The future direction of the economy will depend on the interaction of these complex factors and the response strategies of policymakers. Investors and consumers need to pay close attention to these developments in order to make rational decisions.