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U.S. economic data released this week offered another snapshot of surprisingly resilient American consumer data, with both core and headline retail sales slightly beating expectations, with Core and headline retail sales respectively at 0.5% and 1.4%, above the expectations of 0.4% and 1.3%. Jobless claims also came in below forecast, with 215 000 from expectations of 225 000, reinforcing the idea that while certain sectors may be showing signs of fatigue, the broader economy remains intact. For now.
Meanwhile, Federal Reserve Chair Jerome Powell spoke on Wednesday, with a cautious and balanced tone. He reaffirmed the Fed’s commitment to its dual mandate of price stability and full employment, while subtly acknowledging a more complex challenge ahead: the possibility of inflation and unemployment moving in the wrong direction simultaneously. While inflation has moderated, with core PCE down to 2.6%, Powell made no claims of victory. Instead, he stressed the importance of keeping long-term inflation expectations anchored, warning that while progress has been made, the job is far from done.
On the labor front, Powell described conditions as “broadly in balance”, citing moderating wage growth as a sign that the jobs market is cooling. However, he also flagged tariffs as a growing risk and one that could resume inflationary pressures. Still, he remained confident that long-term expectations are holding firm. He avoided any hints of imminent rate cuts, instead emphasizing the Fed’s capacity to “wait and see”.
Impact of tariffs on U.S. Economy likely significant
Following Powell’s concerns, Fed Governor Christopher Waller weighed in with a more detailed look at the potential impact of tariffs. In a high-tariff scenario, where they hover around 25%, he warned inflation could temporarily spike to 4–5% and GDP growth could “slow to a crawl”. In that context, Waller suggested more aggressive rate cuts could become necessary. On the other hand, a more modest tariff scenario (closer to 10%) would likely have a milder impact on inflation, allowing the Fed more room for manoeuvring. Either way, he emphasized that any tariff-driven inflation would be transitory, though he left quite a clear message: “The new tariff policy is one of the biggest shocks to affect the U.S. economy in many decades”.
Outside of monetary policy, geopolitical risks have reemerged as a major market driver. The U.S. Department of Commerce has issued new restrictions regarding exports of Nvidia and AMD’s AI chips to China, affecting key products such as Nvidia’s H20 chips which could have an impact of over $5.5 billion on Nvidia’s bottom line. And while Beijing has suggested to renew talks with the U.S., it is demanding a more consistent and respectful tone from American leadership. The current market mood is fragile.
Meanwhile, the U.S. dollar continues to weaken, despite persistent upward pressure on Treasury yields. While some have raised concerns about China potentially “weaponizing” its holdings of U.S. debt, U.S. Secretary of Treasury Scott Bessent dismissed the idea, noting there’s no evidence of that yet. He also suggested that should yields rise too far, the Treasury and Fed would likely step in. However, various observers suggest that the market is positioning for further downside in the dollar.
In addition, it’s worth noting that the latest Bank of America Global Manager survey regarding the U.S. profit outlook is one of the most bearish in the last two decades and highlights a global intention to cut U.S. stocks.
Bitcoin: resilient but shaky
In the midst of all this, Bitcoin has quietly outperformed tech equities year-to-date, down just 9% compared to the Nasdaq 100’s nearly 13% drop as of writing. This relative strength could be a reflection of multiple dynamics at play: a weaker dollar of course, but also another narrative emerging. If the U.S. avoids a recession but large tech firms continue to face earnings pressure, Bitcoin might be seen as a more resilient asset, decoupling—at least partially—from traditional risk-on proxies.
That said, Bitcoin’s reaction to last week’s “Liberation Day” shock, where markets abruptly priced in five rate cuts for 2025, revealed something important. BTC sold off sharply, despite the dovish implications. While this may seem counterintuitive, it likely reflects a deeper reality: in moments of panic or perceived instability, Bitcoin still behaves like a risk asset, even if it benefits from easier monetary policy in the longer term.
