Markets face dual uncertainty from Trump's ambiguous stance on China trade deals and the Federal Reserve's cautious approach to rate adjustments amid inflation concerns. Fed stays vigilant, monitoring economic indicators and policy impacts.
Uncertainty Persist as Trump Leaves China Deal Open-Ended
U.S. President Donald Trump continues to fuel market uncertainty with his shifting stance on trade policy. Speaking to reporters on Wednesday, Trump was asked whether he would strike a new deal with China and responded, "It's possible." This comes just days after he imposed an additional 10% tariff on all Chinese imports, citing unfair trade practices and China's failure to curb the flow of fentanyl into the U.S.
Trump's remark suggests he may be open to avoiding a full-scale trade war. However, the lack of concrete details leaves uncertainty over whether actual negotiations are underway. His vague and often spontaneous statements make it difficult for markets to gauge his true intentions on trade, further unsettling investor sentiment.
Fed Minutes Signal Caution Amid Inflation Risks
The Federal Reserve's January meeting minutes reinforced its commitment to keeping interest rates steady amid persistent inflation and economic uncertainty. Policymakers emphasized that as long as the economy remains close to maximum employment, they want to see clearer progress on inflation before making any rate adjustments.
The minutes highlighted upside risks to inflation, pointing to stronger-than-expected household spending. Despite this, officials remain confident that inflation will continue its gradual decline toward the 2% target under appropriate monetary policy.
Trump's Policies Deepen the Fed's Cautious Stance
Fed officials are also closely monitoring Trump's economic policies—including tariffs, tax changes, and immigration reforms—due to their potential impact on inflation, labor markets, and overall economic growth. The lack of clarity surrounding these policies is one reason the Fed is maintaining a cautious, wait-and-see approach.
Market Expectations for Rate Cuts Adjust
While the Fed's latest projections indicate two quarter-point cuts this year, swap pricing currently reflects expectations for just one rate cut. Next week's Personal Consumption Expenditures (PCE) Price Index release—the Fed's preferred inflation gauge—will be crucial in shaping market expectations for the central bank's moves in the coming period.
For traders and investors: Watch for volatility from Trump's trade statements and monitor next week's PCE data for Fed direction. Markets expect fewer rate cuts than the Fed projects, so position accordingly and maintain flexibility for sudden policy shifts.