Dow Plunges 200 Points Amid Fed Jitters and Trump’s China Trade War Escalation

Wall Street’s fear gauge spikes as Powell plays coy on rate cuts while former President Trump doubles down on tariff threats.

Markets recoil at the one-two punch of monetary uncertainty and geopolitical brinksmanship—just another Tuesday in 2025’s casino economy.

Tariffs spook Fed, despite slow inflation

The tariffs are also having a direct effect on Federal Reserve policy. According to a Morgan Stanley analyst, tariffs will certainly have an inflationary effect in the U.S., and the Fed knows this. For this reason, rates will likely remain the same, despite a positive inflation reading.

In April, Core inflation rose 2.5%, its best reading since 2021. This is also the metric the Fed prefers to examine when setting monetary policy. Still, while tariffs haven’t yet had a measurable inflationary effect, the consensus remains that this is likely.

What’s more, the Fed has reiterated its wait-and-see approach on numerous occasions since April, when the tariffs took effect. For now, Chair Jerome Powell seems resistant to pressures by the WHITE House to lower interest rates.