Notable Shifts in U.S. Interest Rate Expectations

Notable Shifts in U.S. Interest Rate Expectations Following Trade Agreement with China

Financial markets have shifted significantly in their expectations for U.S. interest rates following a temporary trade agreement between the United States and China. The agreement featured substantial mutual tariff cuts for 90 days, boosting investor sentiment and reducing short-term rate cut expectations from the Federal Reserve.

Trade Agreement Details and Market Impact

On May 12, 2025, the U.S. and China agreed to reduce tariffs: the U.S. from 145% to 30% and China from 125% to 10%.
This triggered a 950-point jump in the Dow Jones and a 2.6% gain in the S&P 500.
📌 Source: Associated Press

Shifts in Interest Rate Projections

Market probability for a June Fed rate cut fell from 64.4% to 8.1% after the agreement. Treasury yields spiked as well, suggesting fading expectations of near-term easing.
📌 Source: TheStreet
📌 Source: Reuters

Economists’ Opinions

• Mohamed El-Erian (Allianz): Deal could stimulate growth but inflationary concerns persist.

• Mike Wilson (Morgan Stanley): Predicts S&P 500 to reach 6,500, views the deal as a turning point.

• Torsten Sløk (Apollo): Deal removes key tail risks, reducing recession odds.
  📌 Source: Bloomberg

Challenges Ahead

Roger Altman of Evercore noted the agreement doesn’t solve structural issues like Chinese industrial subsidies. Tariffs remain high, still impacting trade.
📌 Source: Business Insider

Conclusion

The temporary trade deal improved confidence and eased pressure on rate cuts but is far from a comprehensive solution. Ongoing vigilance on global policy and macroeconomic data remains essential for traders and investors alike.