When politicians dither, economies suffer. Policy uncertainty exerts a peculiarly pernicious effect on economic growth by making businesses cautious. Bosses confronted with unpredictable regulatory, trade, or fiscal landscapes adopt a “wait-and-see” strategy, delaying costly, difficult-to-reverse decisions—particularly capital investments and hiring. In other words, this reporting from Barron’s is concerning:
Uncertainty is at an almost unprecedented level. The 30-day moving average for an indicator called the Economic Policy Uncertainty Index hit 334 on Wednesday, after reaching 325 on Tuesday and 327 on Monday. Not counting the pandemic era, when it rose above 500, these levels are the highest on record, dating back to 1985. The index aggregates newspaper headlines, disagreements among economic forecasters, and the number of expiring federal tax provisions.
Semafor offers a more narrative take on this same phenomenon:
“A difficult time to invest.”
“Everybody’s paralyzed.”
“I’m sorry I can’t be particularly positive.”
“The chaos that is reigning right now is causing everyone to sit on their hands.”
That’s Citadel CEO Ken Griffin, ON Semiconductor CEO Hassane El-Khoury, Franklin Templeton CEO Jenny Johnson, and Nasdaq Private Market CEO Tom Callahan on the world of Donald Trump right now. Their comments over the past week capture a growing disquiet among business leaders, a month into a presidency that many of them had cheered. “What decision do you make? Do you want to go left or right?” El-Khoury told Semafor in an interview this week. “Are we going to grow the business? Well, I don’t know. Are there tariffs or not?” (Since that interview, Trump threatened to double his own proposed 10% tariffs on China and put a 25% levy on European goods.)
CEO optimism is fading as Trump pushes ahead with trade restrictions, while business-friendly deregulation has yet to materialize. US consumer confidence in January recorded its biggest one-month decline since November 2023. The US stock market, long Trump’s preferred proxy for economic might, is lower than it was before his inauguration, trailing major indexes in Europe, China, Mexico, and Canada — all targets of the president’s planned tariffs.
It kind of makes sense, right? When companies cannot reasonably forecast their tax burdens, healthcare costs, trade policies, or regulatory compliance expenses, prudence dictates delay. But when too many firms simultaneously postpone investment in physical capital, innovation, and human resources, expansions falter and longer-term growth prospects dim. Sometimes, the darkest economic cloud is not knowing which way the wind blows.
Corporate America doesn’t know which way the wind is blowing when it comes to trade. Numerous announced tariffs on China, Canada, Mexico, and the European Union frequently face delays or postponements. Trade policy objectives are fluid and unclear: foreign policy objectives such as curtailing drugs and immigration, protecting favored US industries, reduced trade deficits, and revenue generation. And with those unclear objects come unclear impacts on inflation, corporate profits, employment, and consumer prices.
And domestic policy isn’t the only source of uncertainty. Two weeks ago, Goldman Sachs raised its 12-month price forecast for Europe’s STOXX 600, citing the potential benefits of a peace deal between Russia and Ukraine for the region’s equities. How do things look after the chaotic Oval Office meeting on Friday?
No wonder Mark Zandi, Moody’s chief economist, warned on social media over the weekend:
The economy appears to be gagging on the uncertainty created by the haphazard economic policymaking happening in DC. Retail sales, manufacturing production, real consumer spending, home sales and most telling, consumer confidence, are all down meaningfully in the past month or two. Real GDP is tracking only 1.2% annualized so far in the first quarter, with a big downward revision this past week, given all the weak data. The Atlanta Fed’s tracker says GDP is actually set to decline in the quarter unless the economy soon picks up. Tariff wars, DOGE cuts to jobs and government programs and agencies, and deportations are sowing confusion, which puts a pall on investment, hiring and spending. Even the Fed says it has put interest rate policy on hold until it gets some clarity about where economic policy is going. That may not be for a while as a government shutdown is looming, and another scary Treasury debt limit drama is sure to play out this spring. Lawmakers need to get it together soon, or the economy will go from gagging to choking.
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