If economists worldwide were asked to choose the Market Word of the Year today, “uncertainty” would undoubtedly be the winner. Since the beginning of Donald Trump’s presidency, this term has gained extraordinary prominence in economic discussions. Yesterday, the U.S. Federal Reserve (FED), as expected by the market, kept interest rates unchanged. At the same time, FED Chairman Jerome Powell stated that we are experiencing an exceptionally high level of uncertainty, which makes forecasting difficult and reduces the confidence of all market participants. Investors were more interested in guidance regarding future economic conditions than in the rate decision itself. However, the key answers are likely in President Trump’s mind rather than in Jerome Powell’s statements. This uncertainty is also forcing many investors to rethink their strategies.
During yesterday’s press conference, Powell spoke positively about the overall economy, despite the fact that the latest FED forecasts predict higher inflation and lower GDP growth in 2025. The FED chairman noted that the current inflation increase is a response to the imposition of tariffs and expects that tariff-related inflation will be “temporary.” However, he admitted that it will be difficult to distinguish price increases caused by tariffs from those driven by other factors.
While many analysts focused on the word “temporary” in the FED’s statement—bringing back memories of 2021 when soaring inflation forced the FED to aggressively raise interest rates—the most important word remains “uncertainty.” Analyzing the latest economic forecasts, Powell emphasized the exceptionally high level of uncertainty, which negatively impacts consumer and business confidence. Despite this, President Donald Trump insisted that the FED should cut interest rates, urging them to “do the right thing.”
Trump’s policies have also begun affecting consumers—their confidence has dropped by 22% since December 2024. Inflation forecasts indicate an increase to 4.9% by the end of the year, further complicating the FED’s efforts to combat inflation. In this scenario, inflation in the U.S. would exceed that of Poland, which currently stands at 4.9% and is expected to decline in the coming months. Uncertainty is further amplified by warnings from economists—UCLA Anderson School of Management has issued a “Recession Watch” warning for 2025, indicating that the Trump administration’s policies could lead to an economic slowdown if fully implemented.
Investors reacted positively to the FED’s decision, allowing U.S. stock indices to close the day in the green. However, on an annual basis, indices remain in negative territory: the S&P 500 has dropped by 3.78%, the Dow Jones by 1.71%, and the tech-heavy Nasdaq by as much as 8.3%. Uncertainty is also reflected in gold prices, which have now surpassed $3,000 per ounce, reaching a historic high. The March Bank of America survey on global investment funds sends a clear signal: investor sentiment has hit a critical point, as evidenced by the second-largest decline in global economic growth expectations in history and the largest-ever reduction in U.S. stock allocations.
While Trump’s policies are causing turmoil among U.S. investors and companies, in Europe, uncertainty stemming from the U.S. and threats of a slowdown in global trade are seen as factors that could support European economic recovery. A combination of favorable elements—stable inflation, declining interest rates, increasing government spending (including higher defense sector investments), and historically low valuations of European stocks—creates ideal conditions for growth in European markets. This is also reflected in the strong performance of Poland’s WIG and WIG20 indices since the beginning of the year.
The year 2025 is forcing investors to completely rethink their strategies. The most popular strategy among Polish investors—simple investments in tech giants, as indicated by the Puls Inwestora Indywidualnego eToro survey—must give way to a more balanced approach, emphasizing greater diversification and quality. Amid persistent inflation concerns and uncertain prospects for interest rate cuts, investors are turning to gold and commodities as a hedge. And uncertainty is the word that will stay with us throughout 2025. Let’s just hope it remains the word of the year and not the entire decade.
Paweł Majtkowski
Source: CEO.com.pl
