Wall Street's investor Paul Tudor Jones has warned: Even if Trump reduces tariffs, U.S. stocks could still reach new lows, and the Fed's decision not to cut interest rates increases market pressure.

Wall Street investor Paul Tudor Jones warned during a CNBC interview on May 6 that even if U.S. President Trump reduces tariffs on Chinese goods to 50%, the U.S. stock market could still reach new lows. Jones pointed out that the combination of Trump's high tariff policy and the Federal Reserve's reluctance to cut interest rates creates dual pressure that is unfavorable to the market. This statement has attracted market attention, especially as the Federal Reserve is about to announce its interest rate decision, as investors closely watch policy directions and trade developments.

Jones: High Tariffs and High Interest Rates: A "Disastrous Combination"

Paul Tudor Jones rose to fame by successfully predicting the 1987 "Black Monday" stock market crash and has long been valued in the investment community for his keen insight into market trends. In a recent appearance on CNBC's "Squawk Box," he stated bluntly: "To me, the situation is very clear. Trump is set on imposing tariffs, and the Federal Reserve is equally determined not to cut rates. This is not good news for the stock market."

Jones pointed out that even if Trump reduces the current tariffs on Chinese goods from as high as 145% to 50%, it would still be the largest tax increase since the 1960s, expected to reduce U.S. economic growth by 2% to 3%. He believes that unless the Federal Reserve significantly shifts to a dovish policy, the market will continue to face downward pressure.

Ongoing Tariff Policy Turmoil, Market Confidence Hit

The Trump administration's recent imposition of tariffs on Chinese goods has drawn widespread attention. The current tariff rate is as high as 145%, and China has responded with retaliatory tariffs of 125%. Although Beijing has recently signaled a willingness to restart trade negotiations with the U.S., substantial negotiations have yet to commence.

After meeting with Canadian Prime Minister Trudeau, Trump once stated, "We don't have to sign an agreement," contradicting his Treasury Secretary Besant's earlier claim that they were "very close to reaching an agreement." This policy flip-flopping and uncertainty have further weakened market confidence in trade prospects.

According to USA Today, Trump's remarks led to two consecutive days of declines in the three major U.S. stock indices. The Dow Jones Industrial Average fell 389.83 points, closing at 40,829 points; the S&P 500 Index dropped 43.47 points, closing at 5,606.91 points; and the Nasdaq Index fell 154.58 points, closing at 17,689.66 points.

Federal Reserve Maintains Caution, Low Probability of Rate Cut

Meanwhile, the Federal Reserve began a two-day policy meeting on May 6, with the market widely expecting it to keep the benchmark interest rate unchanged at 4.25% to 4.5%. According to the CME FedWatch tool, the market's expectation for a rate cut announcement at this meeting is just 3.1%.

Federal Reserve Chairman Jerome Powell stated that policymakers want to wait for more clarity on the economic and trade situation before making adjustments. TruStage Chief Economist Steve Rick noted that despite growing calls for a rate cut, the Federal Reserve is likely to maintain a "wait-and-see" stance until major economic indicators show clear changes.

JPMorgan pointed out that rising inflation expectations and worsening economic indicators have put the Federal Reserve in a dilemma. According to the latest data, the U.S. CPI annual growth rate in March was 2.4%, higher than the Federal Reserve's 2% target. A University of Michigan survey shows that the 1-year inflation expectation has reached 6.5%. These data suggest that if the Federal Reserve rashly cuts rates, it could risk further fueling inflation.

Market Pressure Intensifies, Investor Sentiment Cautious

Under the dual pressure of high tariffs and high interest rates, market sentiment has noticeably turned cautious. According to Yahoo Finance, since Trump announced a new round of tariffs in early April, the S&P 500 Index dropped 10% in just two days, and although it has recently rebounded, it is still about 8% below its historical high.

Jones believes the market has not yet bottomed out. He stated, "When we hit new lows, the toughest times will begin, forcing the Federal Reserve and Trump to make policy adjustments, and only then will the market return to reality."

Additionally, JPMorgan's analysis indicates that although some economic data still show the U.S. economy remains strong, the market has not fully accounted for the potential risk of an economic recession. The firm warns that if economic growth slows further, the market could face greater pressure.

References

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