Flight to Safety Boosts Yen, Swiss Franc, and Gold
Investor anxiety over a slowing US economy has triggered a shift into traditional safe havens, lifting the yen and Swiss franc while keeping the dollar near its weakest level since November. Gold inched higher as traders sought refuge from rising economic uncertainty, while oil prices slumped to their lowest levels since September amid weak demand signals from China. With mounting fears of an economic slowdown, risk-off sentiment continues to dominate financial markets.
US Economic Outperformance Faces a Reality Check
After months of outperforming both China and Europe, the US economy is showing signs of strain. A combination of rising tariffs on major trading partners, a higher unemployment rate, and cuts to federal jobs has raised concerns that growth momentum is fading. Bond traders have taken notice, pricing in an increasing risk of economic stagnation. President Donald Trump acknowledged that the economy is undergoing a “period of transition,” though markets remain skeptical about the broader policy direction under his administration.
Treasury Yields Plunge as Rate Cut Bets Build
In a stark reversal, traders have been piling into short-dated Treasuries, pulling the two-year yield sharply lower since mid-February. The shift reflects growing expectations that the Federal Reserve could resume cutting interest rates as soon as May to cushion the economy. This marks a dramatic pivot in market sentiment, as the resilience of US growth had previously been a dominant theme in the Treasury market.
Fed Officials Signal Uncertainty but Hold Steady on Rates
Federal Reserve Bank of San Francisco President Mary Daly warned that growing uncertainty among businesses could dampen demand but maintained that it does not yet warrant a change in interest rate policy. Fed Chair Jerome Powell echoed this cautious stance, acknowledging rising uncertainty in the economic outlook while reaffirming expectations that inflation will gradually return to the 2% target. Powell also suggested that inflationary pressures from tariffs may be temporary, providing some reassurance to policymakers.
Labor Market Softens as Stagflation Risks Emerge
Friday’s jobs data showed that US payroll growth steadied, with nonfarm employment increasing by 151,000 in February after a downward revision to January’s figures. However, the unemployment rate ticked up to 4.1%, reinforcing concerns about labor market slack. With tariffs and Trump’s policies creating headwinds for equities and economic expansion, investors are increasingly wary of stagflation a scenario where inflation rises while growth slows. While it may still be premature to sound the alarm on recession, the risks of a prolonged slowdown are becoming harder to ignore.