Market Stability Hinges on Trump’s Next Move
As the dust settles on Donald Trump’s first week in office, the bond market is breathing a sigh of relief. Despite initial fears of destabilization, traders are hopeful that the Federal Reserve’s upcoming meeting will bring more calm to the market.
A Pause in Rate Cuts?
The Fed is expected to hold interest rates steady, marking the first pause in the rate-cutting cycle that began in September. This could bring relief to the market, especially if Fed Chair Jerome Powell emphasizes a data-dependent approach and leaves rate-cut expectations intact.
Inflation Pressures Ease
The recent consumer price index release showed a slower-than-expected pace of inflation, easing worries about a sharp jump in import prices. This, combined with Trump’s decision to hold off on immediate tariff increases, has dialed back some of the angst about inflation and trade wars.
Tariffs Still a Concern
However, Trump’s order for a 25% duty on all Colombian goods has given traders fresh reason to worry about tariffs. The Colombian government’s agreement to Trump’s terms has alleviated some concerns, but the uncertainty surrounding Trump’s trade policies remains.
Fed’s Wait-and-See Mode
According to Priya Misra, portfolio manager at JPMorgan Asset Management, the Fed is in a wait-and-see mode, keeping their options open due to policy uncertainty. This holding pattern is likely to give the bond market a brief reprieve from volatility.
Labor Market and Inflation
A strong labor market and rising inflation typically indicate climbing bond yields. This could suggest that the Federal Reserve may need to maintain higher rates for longer to combat potential inflationary pressures from a robust economy.
Trump’s Impact on the Economy
The rest of 2025 will heavily depend on Trump’s approach to key issues, including tariffs, tax cuts, and deportation policies. These factors will influence the Fed’s path and the overall economy.
Economic Data to Watch
Upcoming economic data releases, including the personal consumption expenditures index, will provide insight into the state of the economy. The bond market is likely to remain volatile until there is more clarity on Trump’s policies and their impact on the economy.
Market Expectations
The 10-year Treasury yield has fallen, but it’s still about a full percentage point higher than it was in September. Some traders are betting on a jump to around 4.85% or even 5.5% by next month, while others expect it to ease to 4.1% within a couple of months. The uncertainty surrounding Trump’s policies has created a wide range of expectations in the market.
Leave a Reply