Despite President Trump imposing 30% tariffs on major trading partners and publicly criticizing the Federal Reserve chair, financial markets remained largely unfazed. In the past, such events might have triggered investor panic, but Wall Street now seems more focused on upcoming corporate earnings and overall economic health. The lack of reaction highlights a growing market tendency to tune out political noise in favor of more stable economic indicators.
Markets Trust Trump Will Back Down, but Fed Faces Escalating Political Pressure
Economists suggest that markets have adopted what’s dubbed the “TACO” approach — assuming “Trump Always Chickens Out.” Investors have become accustomed to Trump’s dramatic policy threats that often end up being softened or reversed. While this approach has paid off so far, experts warn it’s only viable until one of these threats is actually followed through, potentially causing serious market disruption.
Markets Shrug Off Trump’s Tariffs and Fed Attacks, Betting on Bluster Over ActionThe Trump administration has recently escalated attacks on Fed Chair Jerome Powell, accusing him of misconduct over a costly headquarters renovation. Though Trump denies any intent to remove Powell, these public jabs are seen as an attempt to test the limits of executive power without directly provoking market backlash. The Fed, meanwhile, has remained professional and non-political, with Powell requesting a formal review of the renovation and maintaining his independence in monetary policy decisions.
Markets Rely on Powell’s Stability While Risking Complacency Toward Trump’s Volatility
Despite Trump’s provocations, investors appear confident that Powell will not cave to political pressure. With Powell’s term ending in May 2026, there’s little expectation of an early resignation. This resilience is reassuring to markets, though it underscores how reliant they’ve become on the assumption that Trump’s more extreme moves will continue to be blunted either by advisors, institutions, or public pressure.
While the TACO strategy has brought short-term gains, some analysts warn that markets are becoming too comfortable with unpredictability. Trump has interpreted record stock market highs as approval of his tariff policies, which could encourage him to escalate harmful economic actions. Experts caution that such market behavior might be reinforcing risky policy decisions, potentially setting the stage for a downturn if Trump chooses to follow through on his threats.
