Markets took a sharp downturn as President Donald Trump admitted that his evolving tariff policy could cause economic disruption. At the same time, the Federal Reserve issued warnings about the risk of recession, compounding investor anxiety and sending major indices plummeting.

Trump’s Trade Gamble

Acknowledging pain to justify a long-term plan

Speaking at a Cabinet meeting, President Trump justified his controversial tariff approach, saying the transition may be painful, but it was necessary. His remarks hinted at a willingness to endure short-term market declines for what he considers long-term economic gains.

Trump emphasized that the 90-day pause on “reciprocal” tariffs could be lifted if U.S. trading partners don’t agree to favorable terms. “We’ll have to see what happens,” he stated, leaving open the possibility of steeper tariffs later this year.

Markets React Swiftly

Sharp losses across U.S. indices and crypto

The S&P 500 fell 3.46%, the Nasdaq tumbled 4.31%, and the Dow dropped 2.50%, reflecting widespread uncertainty. Bitcoin also lost ground, declining by 3.37% to $79,800 after a previous rally.

Investors were rattled not only by Trump's rhetoric but also by broader signs that the economy may be entering a fragile phase. Bond markets remain volatile, and confidence in policy direction appears shaken.

Fed Sounds the Alarm

Monetary policy makers grow increasingly anxious

Chicago Federal Reserve President Austan Goolsbee warned of economic backtracking similar to the COVID-19 era. His comments highlighted internal concerns about sentiment collapse, business confidence, and potential stagnation.

The Federal Reserve now appears more cautious, flagging possible risks tied to both inflation and a slowdown in consumer spending, especially as trade tensions intensify.

Internal Divisions and Course Corrections

Behind-the-scenes influence shifts Trump’s stance

According to the Wall Street Journal, Trump initially accepted the possibility of a shallow recession as a way to avoid a more severe depression. However, bond market turmoil and mounting economic pressure led to a strategic reversal.

Key figures like National Economic Council Director Kevin Hassett and Treasury Secretary Scott Bessent reportedly pushed for policy moderation, resulting in a temporary rebound on April 9—the strongest S&P 500 gain since 2008.

Long-Term Implications

Policy uncertainty could define the economic narrative of 2025

If Trump continues to toggle between aggressive trade policies and recession-avoidance strategies, markets will likely remain volatile. Investors will be closely watching for further Fed commentary, as well as updates on negotiations with trade partners.

The combination of inflation risk, policy inconsistency, and trade uncertainty forms a volatile cocktail that could shape the remainder of the year.