For President Trump, the barrage of tariffs the U.S. is ready to unleash on the country’s largest trading partners on April 2 amounts to “Liberation Day,” as he described the trade measures Thursday on social media. To the Federal Reserve, as Chair Jerome Powell relayed on Wednesday, tariffs are a broadside on economic growth.

Where does that leave investors? In morning trade, scratching their heads. Stocks slipped shortly after markets opened Thursday, only to rebound following the release of jobless claims data showing the labor market holding steady. As of 10:15 a.m. EST, the S&P 500 was up 15 points, or 0.3%, to 5,690; the Dow Jones Industrial Average rose 0.2% and the Nasdaq Composite added 0.4%.

That extended the stock market’s modest bounce yesterday after the Fed announced it was standing pat on interest rates, as Wall Street had expected. Indeed, investors may not have learned much from the central bank and Powell’s remarks given that economists have already begun forecasting weaker growth and higher inflation as the U.S. moves to deploy tariffs against Canada, China, Europe, Mexico and other countries. 

Powell’s uncertainty principle

Another thing investors didn’t learn from the Fed: The world is a much more uncertain place today than it was before Mr. Trump was re-elected in November. Financial markets have slumped this year as the White House laid out its plans for tariffs, with the S&P 500 falling briefly into correction territory, or 10% below its previous peak. The index is now down 8.4% since reaching its all-time high on Feb. 19.

Still, if there were any lingering doubts that the nation’s economic outlook is murky, Powell seemed determined to squash them flat. The Fed chair cited uncertainty five times in his prepared remarks and another dozen times in the following press conference. 

That uncertainty refers to the questions regarding how the Trump administration’s economic agenda on trade, immigration, fiscal policy and government regulation could affect the economy. 

For people thinking of taking out a loan, of course, what is certain is that for now the Fed prefers to assess the impact of these policies before cutting its benchmark interest rate. 

That caution, while understandable given the questions hanging over the economy, could itself pose risks — namely, that the Federal Open Market Committee, the central bank’s rate-setting panel, might wait too long before easing back on the stick. 

“[T]he Fed’s understandably cautious stance also opens the door for the Committee to be late to the party in the event the economy starts to lose more momentum, which is the higher risk in our opinion,” TD Cowen analysts said Thursday in note to investors. 

There is ample precedent for the Fed mistiming its policy shifts, as it did during the pandemic when an earlier move to tighten rates might have helped head off rising inflation. 

To be sure, despite the haze surrounding the economy, Powell remains clear on one thing that should prove reassuring to investors: The risks of a U.S. recession remain low. And although Fed policymakers expect inflation to rise this year to 2.7%, they also think it will recede to 2.2% in 2026 and 2% in 2027.

Barry Bannister, chief equity strategist at Stifel, thinks stocks could climb in the near term as investors focus on word from the Fed that it could still lower rates twice this year. Over the longer term, the question hovering over markets will be how the economy responds to the shock therapy administered by Mr. Trump, and whether the Fed has the medicine to address it.