President Donald Trump approved the Federal Reserve for its decision last week to leave interest rates unchanged, an early pivot from his previous demand that the central bank ease “immediately.”

In an exchange with reporters Sunday, Trump said holding its key borrowing level in a range between 4.25%-4.5% was the correct move for the Fed.

“I’m not surprised,” he said regarding the decision, according to multiple reports. “Holding the rates at this point was the right thing to do.”

The statement stood in stark contrast to one Trump delivered when speaking remotely to the World Economic Forum in Davos, Switzerland. In a Jan. 23 appearance, Trump said he would “demand that interest rates drop immediately.”

The president has no direct authority over the Fed, though he does nominate the chairman as well as other board members. Current Chair Jerome Powell is a Trump nominee, and a frequent target of the president’s criticism.

Markets don’t expect the Fed to lower rates until at least June. In his post-meeting news conference last Wednesday, Powell repeatedly asserted that the Fed doesn’t need to be in a “hurry” to lower further after shaving a full percentage point off the fed funds rate from September to December in 2024.

The Fed’s decision-making got potentially more complicated after Trump on Saturday said he would impose aggressive tariffs against Canada, Mexico and China, the three largest U.S. trading partners. Economists worry that the tariffs will drive up prices at a time when inflation has shown signs of easing.

U.S. President Donald Trump this weekend announced hefty tariffs on his country’s three biggest trading partners, leaving investors scrambling to position themselves for a global trade war.

Canada and Mexico face 25% duties on their exports to the U.S., with a lower 10% levy imposed on Chinese goods. Canada has already responded with retaliatory tariffs of 25% against $155 billion of U.S. goods.

Trump has, meanwhile, stated that the European Union will be next in the firing line, with the U.K. also under consideration.

Though Trump repeatedly threatened tariffs on the campaign trail, Deutsche Bank analyst Jim Reid said in a Monday note that the market had been “completely under-pricing the risks” and would now be in “severe shock.”

Among the expected short- to medium-term impacts are a slowdown in global economic growth, particularly in countries with large manufacturing sectors, a spike in oil prices, higher prices for U.S. consumers and higher-for-longer U.S. interest rates, with a stronger U.S. dollar as a result.

Outside of the U.S. and the three other economies directly involved, sectors around the world are braced for impact from the tariffs.

Here are some of the areas expected to be hit:

Germany’s Volkswagen, for example, owns Mexico’s biggest car factory where it produces vehicles for export to the U.S. Analysis by RBC Capital Markets estimates the company could see a 9% cut to its earnings as a result of tariffs in a worst-case scenario, while Stellantis — which owns Chrysler and Jeep — also has major operations in Mexico, including the production of Ram pickup trucks, and see a 12% hit to earnings.

The effects on stocks were immediate on Monday, with European automakers on the regional Stoxx 600 index plunging 3.4%, and part suppliers including Valeo and Forvia also tumbling on expectations of a sector slowdown.

Makers of chips and semiconductor equipment, ranging from Taiwan’s TSMC to the Netherlands’ ASML, are braced for a tariff impact given the industry’s global supply chains — including factories in Mexico and China — and because of a potential slowdown in demand.

Taiwan Semiconductor Manufacturing Co, the world’s largest chipmaker, specializes in making semiconductors for other companies, such as U.S. firms Apple, Nvidia, AMD, Qualcomm and Intel.

ASML, meanwhile, manufactures the extreme ultraviolet lithography (EUV) machines used by many global chipmakers to print intricate designs on chips. ASML ships these tools to multiple countries, including the U.S., Taiwan and South Korea.

“The latest moves won’t do much to calm the high tensions which have hit the semiconductor sector,” Susannah Streeter, head of money and markets at Hargreaves Lansdown, said Monday.

“Companies like Nvidia rely on the production of chips from outsourced factories overseas, like China and Mexico – but many other parts needed to construct AI data centers could also be vulnerable to tariffs, given they are imported.”

For the U.S. consumer, a host of household and leisure goods made overseas could be set for price increases, from furniture and electrical appliances to clothing, video consoles, phones and toys.

Elsewhere, there will be an impact on U.S.-exported products sent to countries such as Canada which retaliate with tariffs — as well as on consumer goods firms around the world that send products across the U.S.’ borders.

One example is drinks giant Diageo, which has already been struggling with weakening demand in North America.

Fintan Ryan, consumer equity research analyst at Goodbody, told CNBC that tariffs were one of the biggest challenges for the company this year as the U.S. accounts for roughly 45% of the company’s operating profit.

Around 70% of its sales in the U.S. are imports, meanwhile, including Canadian whiskey, Mexican Tequila, Scotch, and Baileys and Guinness from EU member Ireland. Diageo is due to report earnings on Tuesday.

This is because Trump has halted a trade exemption known as “de minimis,” which had allowed exporters to ship packages worth less than $800 into the U.S. duty-free.

U.S. officials have claimed the exemption allowed Chinese e-commerce companies to undercut their competitors and flagged safety concerns due to their “minimal documentation and inspection.”

The U.S. processed more than 1.3 billion de minimis shipments in 2024, according to data from the U.S. Customs and Border Protection agency.

Without the exemption, high-volume, low-cost products from China’s online retailers will face duties, potentially pushing up the end price of the items and causing a fall in demand.

— CNBC’s Ganesh Rao, Michael Bloom, Annie Palmer and Ryan Browne contributed to this story.

The euro zone inflation accelerated to a hotter-than-expected 2.5% in January on an annual basis, flash data from statistics agency Eurostat showed Monday.

Economists polled by Reuters had expected the January inflation print to come in at 2.4%, unchanged from December.

So-called core inflation, which strips out food, energy, alcohol and tobacco prices, came in at 2.7% in January and has remained unchanged since September. The closely watched services inflation print meanwhile inched lower to 3.9% in January from 4% in December.

Energy costs however jumped, rising 1.8% from a year earlier. This was up sharply from December’s 0.1% increase.

Headline inflation in the euro zone hit a low of 1.7% in September, but has since re-accelerated as base effects from lower energy prices have faded. The European Central Bank last week said disinflation “is well on track.”

“Inflation has continued to develop broadly in line with the staff projections and is set to return to the Governing Council’s 2% medium-term target in the course of this year,” the bank added. “Most measures of underlying inflation suggest that inflation will settle at around the target on a sustained basis.”

The ECB on Thursday cut interest rates by 25 basis points, bringing the key deposit facility rate to 2.75%. Further rate reductions are expected from the ECB throughout the year.

The Monday data comes after several key euro zone economies, including France and Germany, last week reported their latest consumer price index data. The annual rate hit 1.8% in France and 2.8% in Germany, according to preliminary data from the country’s statistics agencies. The figures are harmonized across the euro zone for comparability. 

This is a breaking news story, please check back for updates.