U.S. equity markets edged lower by midday Tuesday, as investors digested political tensions and awaited the Federal Reserve’s latest policy statement. Just before 12:30 p.m. ET, the Dow Jones Industrial Average fell 199.79 points, or 0.47%. The Nasdaq slid 56.28 points, or 0.29%, while the S&P 500 lost 17.62 points, down 0.32%.

President Donald Trump welcomed Canadian Prime Minister Mark Carney to the White House, to discuss trade prospects between the two neighbors. Trump, posted a blunt message on social media ahead of the meeting. “We don’t need their Cars, we don’t need their Energy, we don’t need their Lumber, we don’t need ANYTHING they have, other than their friendship,” Trump wrote, questioning the value of continued U.S. subsidies to Canada.

Carney, during a press gaggle in the Oval Office, dismissed the notion that Canada could be pressured economically, stating Canada is not for sale. The remarks have sparked concern among market participants about a potential escalation in trade disputes, especially given Trump’s stated desire to protect the U.S. automobile industry.

Federal Reserve FOMC Meeting

Against this political backdrop, all eyes remain on the Federal Reserve, whose two-day policy meeting is currently underway. The Fed is widely expected to hold its benchmark rate steady at 4.25–4.5% for the fourth consecutive time. Analysts believe the central bank is maintaining its cautious stance amid conflicting economic signals and ongoing uncertainty around tariffs.

Recent data have offered a mixed view of the economy. While hard data—such as the April jobs report—indicate strong payroll growth and a stable 4.2% unemployment rate, softer indicators like consumer sentiment have taken a hit. Fed Chair Jerome Powell, in a speech last month, acknowledged the divide: “Sentiment has clearly declined, particularly due to trade policy concerns, and we’re watching those signals closely”.

The central dilemma for the Fed lies in navigating between inflation risks and slowing growth. Tariffs introduced by Trump’s administration are already contributing to a “temporary rise in inflation,” Powell noted, and could become more entrenched if inflation expectations begin to shift upward. While some Fed officials, such as Governor Christopher Waller, believe the inflationary impact will be short-lived, others, including cleveland Fed President Beth Hammack, warn of more persistent price pressures.

Political pressure is once again rearing its head, with Trump calling Powell “Mr. Too Late” and urging rate cuts. Powell, however, has emphasized the Fed’s independence, noting that “we are well-positioned to wait for greater clarity before considering any adjustments”.

Markets are now looking ahead to the Fed’s post-meeting statement and Powell’s press conference for signs of any dovish tilt. With only a 4% chance of a rate cut priced in for May, traders are instead eyeing the possibility of easing later this summer.

For now, the Fed is holding its ground, but as Powell cautioned in Chicago, “We may find ourselves in a challenging scenario where our dual-mandate goals are in tension.” Investors are bracing for what comes next.