Fed rate projections remain unmoved in the face of Trump’s tariff threats.

Markets Dismiss Trump’s Tariff Threats, Fed Outlook Stays Firm

Financial markets remain largely unfazed by President Donald Trump’s renewed threats of higher tariffs, suggesting broad investor confidence that negotiations will avert a major trade shock.

This week, Trump’s administration issued letters to 14 countries, warning that new tariffs on exports to the U.S. will take effect on August 1. The current 90-day tariff pause expires on July 9, and Trump confirmed on Truth Social Tuesday that there would be no extension, declaring the tariffs are set to proceed.

Despite the strong rhetoric, traders continue to bet on the “Trump Always Chickens Out (TACO)” theory, keeping U.S. interest rate expectations largely unchanged.

Rate Cut Projections Hold Steady

Data from the CME’s FedWatch Tool shows markets still anticipating two 25-basis-point rate cuts from the Federal Reserve this year, with the first likely arriving in September.

Last week’s robust U.S. jobs report has ruled out the possibility of a July cut, but markets have left their September expectations untouched. This suggests investors don’t foresee significant inflationary effects from potential new tariffs.

That’s a stark contrast to March, when similar threats from Trump led traders to price in swift rate cuts as early as June. As ForexLive observed, markets now seem to expect further delays or an eventual compromise rather than immediate tariff escalation.

Volatility and Risk Assets Stay Calm

The MOVE Index, tracking expected volatility in the U.S. Treasury market, has continued drifting lower — a sharp reversal from earlier this year, when trade war fears and fiscal risks drove the index from 86.00 up to 139.00 between February and early April.

Stock markets and bitcoin have also shown limited reaction:

• On Monday, the S&P 500 slipped 0.8% to 6,210, but rebounded to 6,225 on Tuesday.
• Bitcoin (BTC) remains steady above $105,000, according to CoinDesk data.

Both markets had peaked in February, declining through March and early April as initial tariff concerns flared.

Dollar Holds Gains

Meanwhile, the U.S. Dollar Index (DXY) rose 0.55% on Monday to 97.60, and has held around those levels since. The index is now testing a bearish trendline originating from highs seen on February 3.

For now, financial markets appear to be betting that Trump’s tariff threats are more a negotiating tactic than imminent policy, leaving the Fed’s rate outlook and overall investor sentiment largely undisturbed.