Markets Brush Off Trump’s Tariff Threats, Keeping Fed Rate Outlook Steady
Financial markets are showing little concern over President Donald Trump’s latest push for higher tariffs, suggesting confidence that negotiations will ultimately prevent a trade blow-up.
Earlier this week, Trump’s administration sent letters to 14 countries, warning of fresh tariffs on exports to the U.S. starting August 1. With the existing 90-day tariff pause expiring on July 9, Trump confirmed via Truth Social on Tuesday that there would be no extension and that the tariffs would proceed as planned.
Despite the tough talk, investors are leaning on the belief that “Trump Always Chickens Out (TACO)”, leaving market expectations for U.S. interest rates virtually unchanged.
Rate Cut Expectations Remain Unchanged
According to the CME’s FedWatch Tool, traders still anticipate two 25-basis-point rate cuts from the Federal Reserve this year, with the first likely in September.
While last week’s stronger-than-expected jobs report eliminated the odds of a July rate cut, markets have not adjusted their forecasts for later in the year. The muted reaction suggests that investors don’t expect significant inflationary effects from potential new tariffs.
This stands in contrast to March, when Trump’s earlier tariff threats drove markets to price in rapid Fed rate cuts as early as June. As ForexLive pointed out, traders now seem convinced there will be further delays or negotiations, rather than an immediate tariff shock.
Market Volatility Tames Down
The MOVE Index, which tracks expected volatility in U.S. Treasury markets, continues to ease lower. That’s a sharp reversal from earlier this year, when worries about trade wars and fiscal risks sent the index soaring from 86.00 to 139.00 between February and early April.
Equities and bitcoin have also taken the latest tariff threats in stride:
- The S&P 500 fell 0.8% to 6,210 on Monday but bounced back to 6,225 on Tuesday.
- Bitcoin (BTC) has stayed rangebound above $105,000, according to CoinDesk.
Both markets peaked in February before declining through March and early April amid heightened tariff anxiety.
Dollar Moves Higher
Meanwhile, the U.S. Dollar Index (DXY) rose 0.55% on Monday to 97.60, maintaining those gains in subsequent sessions. The index is currently testing a bearish trendline drawn from highs reached on February 3.
So far, markets seem confident that Trump’s tariff threats are more bluster than policy — leaving Fed rate expectations and broader financial sentiment largely undisturbed.
