The market will next focus on the Fed's dot plot in June and whether the tariff policy in July will pause or escalate.
Whether Trump can reach an agreement with Fed Chairman Powell is also crucial. If he wants Powell to cut interest rates, it either means collapsing the economy directly or Trump compromising on tariffs. Currently, the 10-year Treasury yield has also exceeded 4.5%, and Trump seems to be getting anxious. To make matters worse, Moody's unexpectedly downgraded the U.S. credit rating, which was a heavy blow to him. During Obama's and Biden's presidencies, there were also downgrades, but they could always shift the blame to the Democrats. This time, the market clearly feels that Trump is a bit out of control, so Moody's took action.
The day before yesterday, Treasury Secretary Basant confidently stated that GDP growth could outpace debt growth and that tariffs could fill the treasury, but the market seems unconvinced. The current market is like dancing on stilts, worrying about a rating collapse while pretending to dance steadily as if nothing is wrong. Next, we will see what new tricks Trump can come up with...
