How did markets react?
Read More: Tariffs struck down, major volatility ahead? – North American session Market wrap for February 20
US financial markets reacted positively to the Supreme Court’s decision on Friday with all three major indexes climbing immediately following the ruling and securing a winning week overall.
While investors were encouraged by the legal blow to the administration’s trade barriers, they also had to weigh a disappointing GDP report showing growth slowing to 1.4% alongside higher-than-expected inflation data.
Treasury yields moved upward as the loss of tariff revenue sparked concerns over a widening fiscal deficit and increased bond supply.
Internationally, the optimism was even more pronounced; Europe’s STOXX 600 index surged to a new all-time high, and gold prices continued their ascent as a weakening dollar and persistent geopolitical uncertainty fueled demand for safe-haven assets.
The continued rise in Gold prices is a nod to the uncertainty which Friday’s decision brings despite the optimism. In short, the decision in some ways brings more questions than answers.
Inflation back to the fore
The US PCE price index rose 0.4% month-over-month in December 2025, following a 0.2% increase in November, the most since February and above market expectations of 0.3%.
This coupled with a 5% weekly gain for Oil prices has reignited fears of inflationary pressures returning which would complicate matters for the global economy.
In December 2025, the European Central Bank projected that a 14% spike in oil prices would potentially add 0.5 percentage points to eurozone inflation over the long term, while shaving a modest 0.1 percentage points off annual growth.
This outlook is particularly sensitive to Europe’s heavy reliance on imported energy, which often causes the Euro to weaken against the Dollar as fuel costs rise. Since those projections were made, oil prices have already climbed by that exact 14% margin, bringing the ECB’s cautionary scenario into reality.
Meanwhile, across the Atlantic, the Federal Reserve expressed concern in its January 2026 meeting minutes about the persistent risk of inflation remaining above target, even suggesting that future interest rate hikes could be necessary.
Despite these hawkish signals from central bankers, investors appear relatively unfazed, continuing to price in two rate cuts for the year, a sentiment supported by the fact that domestic gasoline prices remain near multi-year lows, providing a crucial psychological buffer for the markets.
If oil prices do continue to rise and the geopolitical situation in the Middle East continues to escalate, there may be real risks to the inflationary outlook moving forward.
