by Daniel Brouse
May 6, 2025
The Federal Reserve continues to signal uncertainty about the economic outlook, refraining from lowering interest rates amid what it described as “extreme uncertainty.” The central bank appears caught between the two competing arms of its dual mandate—ensuring price stability and maximizing employment—both of which are increasingly in tension. Notably, the Fed provided little to no guidance on the trajectory of future interest rate policy, nor did it offer clarity on the direction of its balance sheet strategy.
Despite earlier expectations of continued balance sheet reduction, there are increasing indications that the Federal Reserve may be quietly shifting toward renewed quantitative easing (QE) to stabilize financial markets—an implicit admission that financial stability concerns may now take precedence over inflation control. QE, often colloquially described as “printing money,” is widely viewed as inflationary. Moreover, it is a fundamentally unsustainable policy that risks eroding confidence in the Treasury’s ability to finance deficits through traditional bond markets, potentially forcing greater reliance on central bank intervention rather than market-based borrowing.
Compounding the murky outlook is the Trump administration’s erratic and often contradictory approach to trade policy. While a high-level meeting with China is scheduled, President Trump has already stated that existing tariffs will remain in place, undermining prospects for a de-escalation. On the same day, Trump claimed he would announce a new trade deal with the UK. However, absent concrete terms or legal framework, any such “deal” risks adding to the uncertainty—especially if it simply reiterates the status quo, such as maintaining a 10% tariff under a different name.
In sum, both monetary and trade policy are currently characterized more by ambiguity than by coherent strategy. This leaves markets, businesses, and consumers navigating a landscape clouded by inconsistent signals and unresolved tensions.
Trump’s UK Trade Deal: Style Over Substance Amid Rising Economic Uncertainty
President Trump has announced a new trade deal with the United Kingdom, but the lack of clear terms or a binding legal framework raises more questions than it answers. Without details, the announcement risks becoming another source of economic uncertainty—particularly if the so-called deal merely maintains existing tariffs under a rebranded label, such as the continuation of the current 10% tariff on UK goods.
The economic significance of this deal is also questionable. The UK currently runs a trade surplus with the United States, meaning it imports more U.S. goods than it exports—contrary to Trump’s longstanding narrative that America is consistently on the losing end of global trade relationships. If Trump’s approach to trade, often referred to as “Trumpenomics,” were applied logically, one would expect a deal that eliminates tariffs on UK exports to the U.S., while encouraging the UK to impose new tariffs on American goods. This would mirror the punitive tariffs the U.S. has recently placed on other trading partners, such as the 46% tariffs now proposed on imports from Vietnam.
Furthermore, the UK’s role in U.S. trade is relatively minor. It ranks only 11th among America’s trading partners, making this announcement more symbolic than impactful in macroeconomic terms. Without genuine reform or reciprocal concessions, the deal appears to be more of a political gesture than a meaningful shift in trade policy.
In short, the announcement adds noise rather than clarity. Unless the deal results in significant and enforceable changes to trade flows or tariff structures, it risks reinforcing the pattern of headline-grabbing pronouncements that fail to translate into real economic strategy.
UPDATE: Trump’s UK Trade Deal Falls Flat as Markets React Unevenly
President Trump formally announced a trade agreement with the United Kingdom today, but as many anticipated, the announcement proved largely symbolic—a classic “nothing burger.” Despite the fanfare, the deal does little to alter the existing trade framework. Most notably, the blanket 10% tariff on UK imports remains in place, offering no meaningful relief for businesses or consumers and signaling a lack of substantive progress in U.S.-UK trade relations.
Shortly after the announcement, Trump pivoted to future trade negotiations with China, encouraging the public to “buy stocks,” a comment that appeared to be aimed more at boosting market sentiment than signaling any real policy breakthrough. The equity markets responded with a brief rally, but the enthusiasm quickly faded as investors digested the lack of concrete developments. Major indices gave back most of their gains by the end of the session.
Meanwhile, the bond market reacted more sharply. Treasury prices declined, pushing yields higher—a sign that fixed-income investors interpreted the news as potentially inflationary or indicative of increased borrowing needs. The rise in yields also reflects growing skepticism about the effectiveness and consistency of U.S. trade and fiscal policy under Trump, particularly given ongoing deficit concerns and the prospect of looser monetary policy.
In sum, the day’s developments did little to reduce the cloud of uncertainty hanging over U.S. economic policy. With unresolved tensions on multiple trade fronts and no coherent path forward, markets remain volatile and wary of short-term political posturing.