Markets Dismiss Trump’s Tariff Threat as Fed Rate Cut Expectations Hold Steady

President Donald Trump's latest tariff warnings have failed to sway financial markets, with traders maintaining expectations for two Federal Reserve rate cuts this year. The CME's FedWatch tool indicates a 25 basis point reduction in September, followed by another later in 2024.

Despite Trump's August 1 deadline for new tariffs on 14 countries, market participants appear convinced of eventual compromise. This contrasts sharply with March's reaction, when similar threats prompted traders to price in aggressive rate cuts. The current stability suggests investors view the deadline as negotiable.

Notably absent is any pricing of tariff-induced inflation, allowing September rate cut expectations to remain intact. The market's calm response reflects growing sophistication in interpreting political rhetoric, with traders effectively calling Trump's bluff through interest rate futures.