Despite Trump’s tariff threats, markets hold steady on Fed interest rate outlook.

Markets Shrug Off Trump’s Tariff Threats, Keeping Fed Rate Bets Unchanged

Financial markets appear largely unconcerned by President Donald Trump’s latest threats to impose new tariffs, signaling widespread confidence that negotiations will ultimately defuse trade tensions.

Trump confirmed this week that his administration has sent letters to 14 countries, warning that higher tariffs on exports to the U.S. will kick in on August 1. The current 90-day tariff pause expires on July 9, and Trump announced via Truth Social on Tuesday that he would not extend it, affirming that tariffs will move forward as scheduled.

Despite this, investors remain firmly in the camp of the so-called “Trump Always Chickens Out (TACO)” theory, with financial markets showing little change in their outlook for U.S. interest rates.

Fed Rate Cut Projections Hold Firm

Data from the CME’s FedWatch Tool shows traders still expect the Federal Reserve to deliver two 25-basis-point rate cuts in 2025, with the first likely arriving in September.

While stronger-than-expected U.S. jobs data last week dashed any immediate hopes for a July rate cut, the market’s September expectations remain intact. Trump’s tariff threats have not prompted traders to price out those rate cuts, suggesting investors do not see significant inflation risks stemming from potential new tariffs.

This contrasts sharply with market behavior back in March, when earlier tariff threats from Trump led traders to anticipate aggressive rate cuts as early as June. As ForexLive noted, markets now seem to expect more delays, continued negotiations, or even the possibility that tariffs might never be enacted.

Volatility and Markets Stay Steady

The MOVE Index, which tracks expected volatility in U.S. Treasury markets, has been drifting lower. This is a notable reversal from earlier this year when fears of a trade war and fiscal uncertainty pushed the index from 86.00 up to 139.00 between February and early April.

Stock markets and bitcoin have also shown muted reactions:

On Monday, the S&P 500 dipped 0.8% to 6,210, but rebounded to 6,225 on Tuesday.
Bitcoin (BTC) has remained rangebound, holding above $105,000, according to CoinDesk.

Both assets reached their peaks in February before sliding through March and early April amid the initial wave of tariff anxiety.

Dollar Sees Modest Gains

Meanwhile, the U.S. Dollar Index (DXY) rose 0.55% on Monday to 97.60 and has maintained those levels since. The index is currently testing resistance along a bearish trendline drawn from highs set on February 3.

For now, markets appear willing to bet that Trump’s tariff threats are more negotiating tactic than imminent policy, leaving Fed rate expectations and broader financial sentiment largely untouched.