This Week in Review | Tariffs, Fed Chair Testimony, Gold (Feb. 14, 2025)

Transcript

Jessica Breiland:

Hello and welcome to This Week in Review. This weekly segment is designed to highlight a few important developments you may have missed this week, what they mean for markets and most importantly, for investors.

Now, let's review what happened this week.

First, tariffs steal the spotlight again.

On Monday, President Trump announced 25% tariffs on steel and aluminum imports. There's still uncertainty around how these and other proposed tariffs will be rolled out. But they're scale so far appears limited. Targeted tariffs like these tend to create winners and losers in specific industries, but importantly, they haven't historically upended global trade. For example, during his first term, President Trump imposed 25% tariffs on steel and 10% tariffs on aluminum. But those were largely watered down through a slew of quotas and exemptions. Monday's announcement removes many of those exemptions, essentially resetting negotiations. The countries, industries and companies impacted by these tariffs will surely lobby for favored treatment, and we'll see where those negotiations lead. But ultimately, steel and aluminum imports make up a tiny slice of the US economy. So while we think tariffs aren't positive for the economy, these particular ones shouldn't do a whole lot. Trade policy will continue to be important to watch. But from what we've seen so far, tariffs look like they are more bark than bite

Next, the Fed chair reports to Congress.

On Tuesday and Wednesday US Federal Reserve Chair Jerome Powell testified before Congress discussing the state of the US economy and the Fed's monetary policy plans. The main headline—Powell doesn't feel an urgency to lower rates further. Garnering less attention, was Powell's testimony that the US economy is in good shape and not in need of assistance. Many investors believe central bank rate cuts are pivotal to markets, but we think that view overestimates the Fed's influence on the economy. The economy is far too complex and decentralized for Fed policymakers to precisely steer. The impact from rate changes can be muted, lagged or even outweighed by broader economic or market trends beyond a central bank's control. Right now, we believe other factors like household spending and corporate activity matter more to the economy and market than Fed rate cuts.

Finally, gold. Gold has been on a hot streak lately, hitting new all-time highs.

Some think the gold rally will continue thanks to geopolitical uncertainty, inflation and even central banks potentially getting involved as buyers. This could very well be, but in our view, these aren't reasons for long term investors to rush to gold. And history shows why. Consider the geopolitical uncertainty caused by Russia's invasion of Ukraine in 2022. Gold surged initially before it largely slid the rest of the year. What about gold as an inflation hedge? There is plenty of historical precedent where inflation has outpaced gold prices. And if you're counting on central banks to drive up gold prices, yes, their gold purchases can reduce supply and temporarily push prices up, but they can change course at any point. And their actions aren't necessarily a reliable driver of gold prices into the future. In our view, gold prices depend largely on sentiment, not economic cycles. And we think predicting investor mood swings isn't a good strategy for long term investors.

That's it for this week.

Thanks for tuning in to This Week in Review. If you're looking for more insights, then don't miss our other series, 3 Things You Need to Know This Week, released every Monday. You can also visit FisherInvestments.com anytime for our latest thoughts on markets. Thanks again for joining us, and don't forget to hit like and subscribe!