Also tempering market excitement? Today’s interest rate decision announcement from the Fed. Wall Street is almost 100% positive that Fed Chair Jerome Powell won’t announce a cut from the central bank’s current 4.25% to 4.50% rate, but it’s eager to hear what he says about future rate cuts.
Fed funds futures markets suggest a 3% probability of a 0.25 point cut at the Fed meeting, but the probability will rise to 48% at the June meeting, notes Lazard chief market strategist Ronald Temple.
But Temple counsels against optimism. Why? Inflation
“I continue to expect no Fed rate cuts in 2025 due to the reacceleration of inflation that is likely to result from US tariffs,” he says. “With every one percentage point increase in the weighted average US tariff on goods equating to about 10 bps of additional core inflation, the current level of tariffs could add 175 bps to core inflation by year end assuming no further policy changes.”
And while Temple acknowledges that “assuming no further policy changes” in the Trump administration is a terrible bet, he notes that future tariff moves will likely shift, rather than reduce, the overall tariff environment.
Goldman Sachs chief economist Jan Hatzius is similarly not overly optimistic over shifts in the tariff world. He notes that the “mood music” between the two countries has improved, leading his team to expect the U.S. tariff rate on China to drop from around 160% to a still stratospheric 60% “relatively soon,” and that “resilience in the hard economic data has also reassured investors.”
But…
Here’s a snapshot of today’s action:
