U.S. President Donald Trump received a piece of good news Wednesday morning, when the Labor Department reported a lower-than-expected annualized inflation rate of 2.8% for February.
It was a bright spot in a week that had seen stock market turmoil in response to the escalation of a potentially damaging trade war and continued uncertainty about the administration's ongoing effort to slash the federal workforce.
At one point on Tuesday, the S&P 500 stock index had fallen by 10% since hitting an all-time high in February — a decline that would have qualified as a market "correction" had it not recovered slightly before the end of the day. The index was up slightly on Wednesday afternoon but off 8.8% from last month's high.
Economists warned that the positive inflation news may be a temporary respite. Since the beginning of March, Trump has imposed additional tariffs of 10% on Chinese goods, tariffs as high as 25% on many goods imported from Mexico and Canada, and an across-the-board tariff of 25% on steel and aluminum. The impact of those moves was not reflected in the numbers released Wednesday.
Also not reflected was the pledge from the European Union and other countries to impose retaliatory tariffs on U.S. goods, which would make it harder for American manufacturers to sell their products outside the domestic market.
Strong medicine
Trump has occasionally acknowledged his policies may cause short-term economic disruption and pain but has insisted they will lead to greater prosperity that will benefit all Americans.
At an appearance before the Business Roundtable in Washington on Tuesday, he insisted that manufacturing firms are already scouting new U.S. locations so they can move operations and avoid tariffs.
"They're looking all over the place for places. … And also, very importantly, the tariffs are — they don't want to pay 25% or whatever it may be, it may go up higher," the president said.
At a separate event at the White House on Tuesday, Trump was asked about Americans who might be concerned that a tanking stock market had damaged their retirement savings.
"Markets, they're going to go up, they're going to go down, but you know what? We have to rebuild our country," Trump said.
"Our country had to do this," he said. "We had to go and do this. Other countries have taken away our business, taken away our jobs."
Deregulation and 'tax cuts'
Mary Lovely, a senior fellow with the Peterson Institute for International Economics, said economists will be closely watching certain factors for clues about where the economy is headed in the coming months.
The Trump administration has signaled that it wants to enact sweeping deregulation on some industries, which could boost certain sectors of the economy and help lower prices.
"This is something that a lot of companies say is going to offset the cost, but it's clearly going to be selective," Lovely said, so the degree to which it will impact the broader economy is unclear.
A second factor will be whether Congress extends tax cuts enacted during Trump's first term or adds additional reductions.
"A lot of people talk about the 'tax cuts,' but in fact, most of them are extensions," Lovely said. So, unless there are new cuts, "it's not new juice for the economy," she said.
Lovely also pointed out that higher prices due to tariffs will have a disproportionately harmful effect on lower-income Americans. They will see a larger percentage of their income eaten up by higher prices as tax policies largely benefiting the wealthy are likely to be extended.
"So, you have a kind of reverse Robin Hood going on there," she said.
Consumer uncertainty
The economists who spoke to VOA — whether their focus was consumer behavior, corporate decision-making or the vagaries of international trade — all said that the number one issue facing economic actors today is uncertainty.
On tariff policy, in particular, the Trump administration has been inconsistent in its approach, announcing that specific new tariffs would be imposed only to shift direction — sometimes on the same day.
On Tuesday, for instance, Trump announced a further 25% tariff on some goods from Canada only to walk back the threat hours later.
Elizabeth Renter, a senior economist with the personal finance website NerdWallet, said the effects on consumer confidence are already measurable.
"We've begun seeing the impact of potential economic policies make their way into the data," she told VOA via email. "Inflation expectations have risen, consumer sentiment has fallen and households are feeling more pessimistic about their future financial conditions."
"Current consumer reactions are pretty natural responses to uncertainty about the economy," Renter wrote. "It's difficult to make financial plans when you're uncertain of where policy will land, and people are being confronted with possible changes often. This sentiment shapes behavior, as businesses and households may pull back on planned investments and spending, choosing to save their money in a precautionary way instead. Those behavior changes can shape the economy directly."
Businesses reel
For corporations trying to make business decisions, the environment feels treacherous, Desmond Lachman, a senior fellow with the conservative think tank American Enterprise Institute, told VOA.
"It's very worrying what's going on, because what Trump has done is just injected a huge amount of uncertainty into economic policymaking," he said.
"You saw that most clearly with the import tariffs," Lachman said. "One minute he's got the tariff on, the next minute he's got it off, the next minute he's making an exemption. The next day he's announcing another tariff. So, it's very difficult for businesses to plan. They've just got no clue what's going on … and can't make a reasonable investment decision."
The vacillating on tariffs hasn't been businesses' only concern, Lachman said. The effort by the so-called Department of Government Efficiency, led by the world's richest man, Elon Musk, to slash the government workforce has created confusion. In a number of cases, workers have been summarily fired only to be called back to work shortly after, creating doubt about which government programs will be supported by adequate staff going forward.
"Things just look very haphazard to the markets, and they're voting with their feet," Lachman said.
Trade in disarray
On Wednesday, the European Union and Canada announced a raft of retaliatory tariffs set to roll out next month on billions of dollars' worth of U.S. goods. The levies, which will affect Harley-Davidson motorcycles, Kentucky bourbon and various agricultural products, were in response to Trump's global 25% tariff on steel and aluminum.
U.S. Trade Representative Jamieson Greer issued a blistering statement Wednesday accusing the European Union of ignoring legitimate U.S. interests in having strong domestic steel and aluminum production sectors.
"The EU's punitive action completely disregards the national security imperatives of the United States — and indeed international security — and is yet another indicator that the EU's trade and economic policies are out of step with reality."
Lachman of the American Enterprise Institute said he is concerned about the dangers of further escalation.
"This is dangerous where we're going," he said. "I'm particularly worried about the retaliation — if [Trump] retaliates for the retaliation."
He said that risks a cycle of ever-increasing tariffs of the sort that helped deepen the Great Depression nearly 100 years ago.
"We just get this kind of tit for tat and ratchet up, and there are no winners," he said. "It's just a question of who's going to lose more."
