Trump's rapid policy changes may suppress 'animal spirits'
In recent weeks, consumer and corporate optimism has diminished as markets start to address the potential impacts of Trump's agenda.
TroibNews 
President Donald Trump’s choice to implement significant tariffs on the United States' primary trading partners is darkening the economic forecast as companies contemplate delays in future hiring and investment.
Trump’s erratic trade policy, characterized by sweeping announcements of universal tariffs followed by various delays, exemptions, and reversals, has hindered businesses' ability to plan effectively during the early days of his presidency. Although he has committed to an agenda that aims to empower private enterprises, the uncertainty stemming from his numerous tariff announcements could threaten investments that are crucial for economic growth.
A recent survey released Wednesday indicates that private sector hiring dramatically decreased last month, with many businesses citing unpredictable policies as obstacles to growth. Major Wall Street banks, including JPMorgan Chase and Goldman Sachs, are increasing the odds of the U.S. slipping into a recession within the coming year. The Federal Reserve Bank of New York reported that companies in New York and New Jersey anticipate prices could rise by as much as 4 percent over the next year. Moreover, regional banks at the Fed have indicated that trade policies are contributing to economic uncertainty nationwide.
Gregory Daco, chief economist at global consulting firm EY Parthenon, noted, “It’s not just the broad fear of tariffs; it’s not knowing if they’ll be affected, how they’ll be affected or when they'll be affected. That’s the gist of the conversations we have with clients across multiple sectors: They don’t know how to best position themselves with regard to the latent uncertainty about tariffs moving forward.” He expressed that Trump’s "'move fast and break things’ approach is hindering that very investment.”
Trump's bid for a second term included promises to revitalize domestic industries and increase wages. However, an economic downturn could present significant political challenges for his administration, which seeks comprehensive reform of the federal government and economic policy. Sensitive to the financial markets, the president and top officials such as Treasury Secretary Scott Bessent are aiming to enhance corporate investment and “re-privatize” the economy.
This ambition, however, hinges on consumer and corporate confidence, both of which have diminished in recent weeks as markets grapple with the potential ramifications of Trump’s policies. “The administration wants higher growth because animal spirits are unleashed,” remarked Rebecca Patterson, a senior fellow at the Council on Foreign Relations and former chief investment strategist at Bridgewater Associates. “But how do you get more animal spirits — more mergers and IPOs — if there’s uncertainty around market and economic conditions? That seems contradictory.”
Just a day after initiating a significant trade dispute with Canada and Mexico — the U.S.’s two largest trading partners — the White House announced temporary exemptions for domestic automakers reliant on foreign imports. This policy reversal mirrors an earlier decision in which Trump temporarily reinstated duty-free status for low-cost imports from China.
Even officials within the administration have started to temper their expectations for immediate economic gains. While the labor market remains robust by historical measures, Bessent remarked last week that policies from the Biden administration had driven many sectors of the private economy into recession. Trump has also acknowledged that tariffs will bring some economic disruption, stating, “There’ll be a little disturbance, but we’re okay with that. It won’t be much.”
Press Secretary Karoline Leavitt confirmed that Trump was “being frank and honest” regarding the short-term impacts of his trade strategy, asserting, “The American people elected this president to have monumental reform and change, including rebuilding our manufacturing base in this country, standing up to foreign nations who have been ripping off our country for decades. That requires a little bit of disruption, that requires a lot of effort and work that this president is focused on doing.”
Importantly, many indicators suggesting the economy might be nearing a turning point due to tariffs or uncertainty surrounding them are primarily reflected in surveys rather than the "hard" data that gauge official economic activity or payroll growth.
The Labor Department is scheduled to release its monthly jobs report for February on Friday, with economists anticipating it will demonstrate solid growth in non-farm payrolls — the median prediction stands at 170,000 — while unemployment is expected to remain steady at 4 percent. The ISM Services Index for February, which monitors sectors such as finance and hospitality, exceeded expectations on Wednesday, indicating many firms are still expanding their workforce.
However, rising prices — or even the mere expectation of increased prices — from tariffs could pressure Federal Reserve Chair Jerome Powell to keep borrowing costs elevated for an extended period, thereby limiting the capacity of small and mid-sized businesses to secure financing for new capital-intensive projects or hiring. New York Fed President John Williams commented on Tuesday that uncertainty linked to tariffs could lead to rising prices, impacting investment activity in the near term.
“The biggest constraint on small businesses is the level of financing. It is not, you know, animal spirits,” stated Brij Khurana, a fixed-income portfolio manager at Wellington Management. “If we are in a higher inflationary environment, and therefore [see] less Fed cuts in general than we would have thought a few months ago, small businesses aren't going to be doing the hiring we thought.”
Emily Johnson contributed to this report for TROIB News
Trump’s erratic trade policy, characterized by sweeping announcements of universal tariffs followed by various delays, exemptions, and reversals, has hindered businesses' ability to plan effectively during the early days of his presidency. Although he has committed to an agenda that aims to empower private enterprises, the uncertainty stemming from his numerous tariff announcements could threaten investments that are crucial for economic growth.
A recent survey released Wednesday indicates that private sector hiring dramatically decreased last month, with many businesses citing unpredictable policies as obstacles to growth. Major Wall Street banks, including JPMorgan Chase and Goldman Sachs, are increasing the odds of the U.S. slipping into a recession within the coming year. The Federal Reserve Bank of New York reported that companies in New York and New Jersey anticipate prices could rise by as much as 4 percent over the next year. Moreover, regional banks at the Fed have indicated that trade policies are contributing to economic uncertainty nationwide.
Gregory Daco, chief economist at global consulting firm EY Parthenon, noted, “It’s not just the broad fear of tariffs; it’s not knowing if they’ll be affected, how they’ll be affected or when they'll be affected. That’s the gist of the conversations we have with clients across multiple sectors: They don’t know how to best position themselves with regard to the latent uncertainty about tariffs moving forward.” He expressed that Trump’s "'move fast and break things’ approach is hindering that very investment.”
Trump's bid for a second term included promises to revitalize domestic industries and increase wages. However, an economic downturn could present significant political challenges for his administration, which seeks comprehensive reform of the federal government and economic policy. Sensitive to the financial markets, the president and top officials such as Treasury Secretary Scott Bessent are aiming to enhance corporate investment and “re-privatize” the economy.
This ambition, however, hinges on consumer and corporate confidence, both of which have diminished in recent weeks as markets grapple with the potential ramifications of Trump’s policies. “The administration wants higher growth because animal spirits are unleashed,” remarked Rebecca Patterson, a senior fellow at the Council on Foreign Relations and former chief investment strategist at Bridgewater Associates. “But how do you get more animal spirits — more mergers and IPOs — if there’s uncertainty around market and economic conditions? That seems contradictory.”
Just a day after initiating a significant trade dispute with Canada and Mexico — the U.S.’s two largest trading partners — the White House announced temporary exemptions for domestic automakers reliant on foreign imports. This policy reversal mirrors an earlier decision in which Trump temporarily reinstated duty-free status for low-cost imports from China.
Even officials within the administration have started to temper their expectations for immediate economic gains. While the labor market remains robust by historical measures, Bessent remarked last week that policies from the Biden administration had driven many sectors of the private economy into recession. Trump has also acknowledged that tariffs will bring some economic disruption, stating, “There’ll be a little disturbance, but we’re okay with that. It won’t be much.”
Press Secretary Karoline Leavitt confirmed that Trump was “being frank and honest” regarding the short-term impacts of his trade strategy, asserting, “The American people elected this president to have monumental reform and change, including rebuilding our manufacturing base in this country, standing up to foreign nations who have been ripping off our country for decades. That requires a little bit of disruption, that requires a lot of effort and work that this president is focused on doing.”
Importantly, many indicators suggesting the economy might be nearing a turning point due to tariffs or uncertainty surrounding them are primarily reflected in surveys rather than the "hard" data that gauge official economic activity or payroll growth.
The Labor Department is scheduled to release its monthly jobs report for February on Friday, with economists anticipating it will demonstrate solid growth in non-farm payrolls — the median prediction stands at 170,000 — while unemployment is expected to remain steady at 4 percent. The ISM Services Index for February, which monitors sectors such as finance and hospitality, exceeded expectations on Wednesday, indicating many firms are still expanding their workforce.
However, rising prices — or even the mere expectation of increased prices — from tariffs could pressure Federal Reserve Chair Jerome Powell to keep borrowing costs elevated for an extended period, thereby limiting the capacity of small and mid-sized businesses to secure financing for new capital-intensive projects or hiring. New York Fed President John Williams commented on Tuesday that uncertainty linked to tariffs could lead to rising prices, impacting investment activity in the near term.
“The biggest constraint on small businesses is the level of financing. It is not, you know, animal spirits,” stated Brij Khurana, a fixed-income portfolio manager at Wellington Management. “If we are in a higher inflationary environment, and therefore [see] less Fed cuts in general than we would have thought a few months ago, small businesses aren't going to be doing the hiring we thought.”
Emily Johnson contributed to this report for TROIB News
