LONDON/NEW YORK: Wall Street shares fell Thursday as a rally faded over lingering concerns about the economic fallout from President Donald Trump’s trade war despite his U-turn on steep new tariffs. A larger-than-expected drop in US consumer inflation in March added to the pessimistic outlook, as it suggested that uncertainty over Trump’s tariff plans has already taken a toll on the world’s largest economy.

Investors in response sold off the dollar, which had already taken a hit from the trade war worries, even though slowing inflation would give the Federal Reserve more room to cut interest rates to spur growth. “Is inflation moving sustainably lower or did businesses and consumers pull in the reins as they brace for an economic slowdown?” said Bret Kenwell, US investment analyst at the eToro trading platform.

“Getting lower inflation due to a material drop in economic activity — and thereby jeopardizing the economy — isn’t the best route to take,” he added. Wall Street indices on Wednesday had posted their biggest one-day gains since 2008 after Trump announced the tariff pause, which had sent stocks lower around the globe in recent sessions. Donald Trump’s tariff policy has caused a “marked increase” in the risks of higher inflation and slower growth, a senior Federal Reserve official said Thursday, adding he would prioritize tackling inflation. The US president’s stop-start tariff rollout has roiled global markets, and tanked consumer confidence, although it has not yet fed through into higher prices for consumers.

“Relative to earlier this year... it appears as though we have seen a marked increase in the upside risks around inflation along with elevated downside risks to the outlook for employment and growth,” Kansas City Fed President Jeff Schmid told an event in the city.

US consumer inflation cooled last month on plunging gas prices, according to government data published Thursday, as consumers and businesses waited nervously for President Donald Trump’s sweeping tariffs to come into effect. The US leader last week announced levies as high as 50 percent on imports from some countries, sending stock markets tumbling and bond yields rising — only to abruptly change course on all nations except China on Wednesday.

The Trump administration has been under pressure in recent weeks to explain how consumers will benefit from its tariff plans — which many economists and Federal Reserve officials say will stoke inflation and cool growth.

Asian and European markets staged their own rallies on Thursday. The shock decision to delay bigger levies on goods from scores of countries by 90 days drove the European Union to put its counter-tariffs on hold. The trade war fears had also pummeled US Treasuries — normally considered the safest option in times of crisis — a sign of how nervous investors had become.

“The bottom line is that the tariff narrative still remains too volatile for comfort, and markets are searching for equilibrium in a sea of uncertainty,” said Fawad Razaqzada, a market analyst at StoneX.

Trump nonetheless kept a baseline 10 percent tariff intact and ramped up his trade war with Beijing by hiking duties Chinese goods to 125 percent after facing strong retaliation. But Chinese markets still benefitted from the relief rally across Asia and Europe on Thursday, also gaining support from optimism that Beijing will unveil fresh stimulus measures to support its economy.

Hong Kong rose more than two percent — a third day of gains after collapsing more than 13 percent on Monday, its worst trading day since the Asian financial crisis in 1997. “Crucially, we are currently still on course for a disorderly economic decoupling between the world’s two largest economies, with no immediate signs of either US or China backing down,” said Jim Reid, an analyst at Deutsche Bank.

Oil prices dropped after bouncing more than four percent Wednesday, again under pressure from concerns about the global economy and its impact on demand. — AFP