The economy and policies are currently stable. Concerns about tariffs affecting inflation have eased since their announcement. There are different views on how much tariffs will affect consumer prices. Economic conditions might soon require a cut in interest rates.

Market Expectations

CEOs remain cautiously hopeful about the effects of tariffs. An interest rate cut is more likely in the autumn rather than July, unless there’s a decline in the job market. Currently, the market estimates a 15% chance of an interest rate cut in July. This is different from earlier comments by another Federal Reserve representative but hasn’t surprised market watchers. Recently, the market has calmed from its earlier anxiety over trade tensions and inflation. The worst fears about tariffs haven’t come true, and this is reflected in pricing expectations and general sentiment. Initially, there were worries that tariffs would raise costs significantly, affecting overall consumer inflation. However, the latest data does not support this concern. Pricing models show that while some costs have affected prices, the overall impact on inflation remains limited. In some industries, companies are absorbing these cost increases, reducing the impact on consumers. We are closely monitoring key indicators like wage growth and service-sector costs to ensure no hidden issues are developing.

Economic Outlook

Looking at the big picture, the economy is steady but showing signs of slowing down. Inventories are not clearing quickly, and business investments have dipped in some areas, suggesting caution. These factors are shaping expectations for interest rates. Powell indicated that there’s no immediate need for action, allowing policymakers to assess more data in the coming weeks. If job numbers decline or inflation falls significantly below target, the risks may shift. Currently, the likelihood of a rate change in July is low; markets only see a 15% chance, indicating a consensus against immediate changes. In the next few weeks, the focus will be on job growth and service inflation resilience, rather than reacting to headlines. It’s worth noting that this communication differs from earlier statements by Waller, who linked tariffs directly to monetary policy. For traders focused on interest rate expectations, the advice is to adjust strategies rather than predict immediate changes. Volatility might stay low unless job reports or inflation surprises arise. There’s less eagerness to anticipate early price adjustments. This creates a chance for temporary calm, but it’s essential to watch for any forecast changes from the Fed later this summer. The upcoming focus will be more on job market performance than consumer prices. Derivatives strategies should reflect this shift—monitoring employment trends and policy changes instead of speculating on a July rate cut. Adjusting exposure accordingly can help navigate this period with reduced risk. Create your live VT Markets account and start trading now.

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