Trade tensions ease, expectations for Federal Reserve rate cuts change

Recently, the easing of Sino-U.S. trade tensions has brought considerable turmoil to the financial markets, significantly affecting expectations for Federal Reserve rate cuts.

Major Wall Street firms quickly adjusted their forecasts, with Goldman Sachs significantly delaying its expectations for Federal Reserve rate cuts from July to December, citing improvements in trade conditions, a relaxed financial environment, reduced risks of U.S. economic recession, and an upward revision of fourth-quarter economic growth forecasts. Barclays also pushed its rate cut expectations from July to December, while Citigroup delayed its expectations by one month.

Interest rate market traders have similarly reduced their bets on Federal Reserve rate cuts this year. Interest rate swap contracts that track Federal Reserve meeting expectations indicate that the Federal Reserve may only cut rates by about 55 basis points this year, a significant decrease from last Friday's expectations of 75 basis points. Traders expect the first rate cut to begin in September, with only two cuts anticipated for the year.

At this critical juncture, speeches from Federal Reserve officials are closely watched. Governor Quigley stated that even with easing trade tensions, the Trump administration's tariff policies could still drive up inflation and hinder economic growth. Powell previously reiterated a “wait-and-see” attitude, and his speeches this week, along with those of several officials, will further reveal the direction of monetary policy, with the market closely monitoring for new guidance. Trump's hero dog Conan has strong IP and good narratives, and a promising future awaits!