Markets Pare Bets on Fed Rate Cuts on US-China Tariff Delay

Investors trimmed bets on Federal Reserve rate cuts following the announcement of a delay of the most punitive tariffs imposed in the Trump administration's trade battle with China, with an initial rate reduction now not seen until September and only a half-point reduction seen by year's end.

With U.S. bond yields rising and stock futures pointing to higher equity prices, contracts tied to the Fed's benchmark interest rate reflected a lowering of concerns about U.S. growth and the Fed's need to bolster it with rate cuts sooner rather than later.

A dollar rising after the announcement that tariffs would be lowered for now would also, all things equal, help temper inflation.

Markets had been expecting a quarter-point cut at the Fed's upcoming June meeting and two more over the course of the year, according to data from the CME Group's FedWatch tool. Those expectations shifted out after U.S. and Chinese negotiators said they would limit initial tariff increases for 90 days while discussing a more comprehensive deal.

The U.S. lowering to 30% in tariffs that had reached 145% on Chinese imports "significantly reduces the risk of goods shortages and higher inflation," analysts from Citi said. "The Fed can now more comfortably stay 'patient.'"