President Donald Trump has signaled potential shifts in his economic policy, softening his rhetoric on both the U.S. Federal Reserve and the ongoing trade war with China. In recent statements, Trump expressed optimism about improving relations with Beijing and clarified his position on Federal Reserve Chair Jerome Powell.

US-China Trade Relations: Tariffs to Decrease, but Not Disappear

Trump expressed hope that the U.S. and China could reach a trade deal, noting that tariffs on Chinese imports, which have risen as high as 145%, would "come down substantially." However, he made it clear that they would not be entirely eliminated. The tariffs are part of his broader economic strategy to bring manufacturing jobs back to the U.S., although they have contributed to market instability and global economic uncertainty.

In response, China has imposed retaliatory tariffs of up to 125% on U.S. products, with officials pledging to "fight to the end" in the trade dispute. An article in China’s state-run Global Times suggested that Trump’s softened tone might indicate a realization that tariffs could harm the U.S. economy in the long term.

Federal Reserve: Trump Eases Criticism of Jerome Powell

After weeks of criticism, Trump reversed course on his approach to Federal Reserve Chair Jerome Powell. The president had previously called Powell a "major loser" and questioned his leadership of the central bank. On Tuesday, Trump reassured the public that he has “no intention of firing” Powell.

While Trump toned down his criticism, he also reiterated his desire for Powell to act more decisively in lowering interest rates to stimulate the economy, saying, “I’d like him to be a little more active.” Despite the rhetoric, Trump emphasized that Powell would remain in his post.

Market Responses to Trump’s Comments

Trump’s recent comments seemed to alleviate some investor concerns. Following his statements, global markets showed signs of recovery. On Wednesday, Japan’s Nikkei 225 rose by 1.9%, while Hong Kong’s Hang Seng climbed by 2.2%. In the U.S., the S&P 500 and Nasdaq both saw gains of more than 2% on Tuesday.

While markets rebounded, economists remain cautious about the potential long-term effects of the trade war. The International Monetary Fund (IMF) downgraded the U.S. growth forecast for 2025, citing the ongoing uncertainty caused by tariffs and trade tensions.

Concerns Over Inflation and Political Influence on the Fed

Despite recent market gains, concerns linger about inflation. Analysts warn that Trump’s push for lower interest rates could fuel inflation, especially with tariffs already driving up prices. Additionally, there is growing concern over political interference in the Federal Reserve’s independence, given Trump’s recent remarks about Powell.

Trump’s administration has suggested exploring the possibility of removing Powell from office, though it remains unclear whether the president has the authority to do so. No U.S. president has ever attempted to fire a sitting Fed chair.

Looking Forward: Continued Uncertainty in Global Markets

As the trade war with China drags on, the global economy remains uncertain. Treasury Secretary Scott Bessent has called for a resolution, labeling the ongoing trade conflict as "unsustainable." National Economic Council Director Kevin Hassett confirmed that Trump has considered replacing Powell, though no actions have been taken yet.

The coming months will likely be critical for both U.S. economic policy and global market stability, as investors and policymakers navigate the complexities of the trade dispute and Federal Reserve actions.