Uncertainty is the key word since President Donald Trump took over the Oval Office of the White House in Washington. The US stock market is in turmoil, the narrative of a possible US recession is finding its way into the headlines and conflicting decisions concerning tariffs are puzzling investors, consumers and businesses alike.
This is why the Federal Reserve’s interest rate decision was eagerly expected as investors are trying to search for clues to understand what is going on. Unfortunately, the keys are all in Trump’s unpredictable hands, writes eToro analyst for Romania, Bogdan Maioreanu.
The Fed decided to keep interest rates unchanged, citing rising uncertainty around the economic outlook. Fed Chair Jerome Powell spoke positively about the economy as a whole, even as the Fed’s latest economic outlook included reduced GDP growth and higher inflation expectations for 2025. But Powell considers that “inflation has started to move up, partly in response to tariffs” and this can bring delays in seeing further progress in reducing inflation this year. Powell expects any tariff-driven inflation to be “transitory,” though he acknowledged it would be difficult to distinguish between inflation caused by tariffs versus other factors.
While many observers are focused on the word “transitory” from yesterday’s Fed commentary — triggering flashbacks to 2021 when rampant inflation ultimately forced the Fed to aggressively raise rates — perhaps the word of the day should be “uncertainty.” As investors devour the Fed’s latest economic projections, Chair Powell stressed the “unusually high” uncertainty that’s clouding the ability to make accurate forecasts and is weighing on consumer and business confidence. Despite this, Trump said in a post that the Federal Reserve should cut interest rates, asking them to “do the right thing”.
Trump’s turbulent policies have also begun to take a toll on consumers, with confidence falling 22% from December 2024, while consumers also expect inflation to rise to 4.9% by the end of the year, complicating the Fed’s efforts to fight inflation. To add more to uncertainty, the UCLA Anderson School of Management has issued a Recession Watch for 2025, warning that Trump administration’s policies could trigger an economic downturn if fully implemented.
Despite current positive indicators (4.1% unemployment, 151,000 jobs added in February), economist Clement Bohr identifies three major concerns: proposed tariffs that could devastate manufacturing, government workforce reductions of 10-15% through the Musk-led DOGE initiative, and mass deportations that would cripple construction and agriculture sectors. The recession could be stagflationary, combining economic decline with rising inflation, but is still “entirely avoidable” if Trump administration policies are moderated or phased in more gradually.
Investors reacted positively to the Fed’s decision, with the US indices finishing the day in green. But still for the year the financial markets are in the red, with S&P 500 at -3.78%, Dow Jones at -1.71% and the tech-heavy Nasdaq at -8.3%. The uncertainty is extremely well reflected in the price of Gold which is currently trading at over 3000 dollars an ounce, an all-time high. Also, Bank of America’s latest March survey of global investment fund managers sends a clear message: investor sentiment has reached a dead end, with the second-largest-ever drop in global growth expectations and the biggest-ever reduction in the allocation to US equities. 69% of the surveyed investors considered that the “US exceptionalism” just ended. As a result, we are seeing the largest rotation toward European stocks from 2021 until today.
While Trump’s policies look determined to puzzle American investors and businesses alike, in Europe, the uncertainty coming from the US and the risks of slowing global trade are perceived as a catalyst for reviving the European economy.
A combination of positive factors—stable inflation, falling interest rates, and rising government stimulus, including the prospects of increasing defense sector spending, along with historically low European stock valuations, creates ideal conditions for growth in European markets.
Even the Romanian stock exchange BET Index, which currently faces the uncertainty of the upcoming presidential elections, has a better result (+3.48% year to date) than the S&P 500 index.
So far, 2025 is proving to be a year where investors are forced to rethink their playbook. The old strategy of simply riding mega-cap tech stocks to profits is giving way to a more balanced approach—one that favors diversification and quality. Hedging might be another critical piece of the puzzle.
With inflation concerns still lingering and rate cut expectations shifting, investors are turning to gold and commodities as a buffer. Bond ETFs are also making a comeback, offering steady income and portfolio stability amid the uncertainty. Even crypto, once dismissed as a high-risk outlier, has found its place in the investor’s portfolios. According to the latest eToro Retail Investor Beat Survey, 55% of Romanian individual investors own a form of crypto assets in their portfolios.
