Trump, Powell & Rates: Tariffs On, Tariffs Off

by Kevin Flanagan, Samuel Rines of WisdomTree, Inc., 6/5/25

Key Takeaways

With tariffs toggling on and off and a major tax bill still in flux, investors should brace for headline-driven volatility through July, particularly around trade and fiscal policy.
Despite political pressure, the Federal Reserve remains committed to data-dependent rate decisions, with September shaping up as the earliest likely inflection point for policy changes.
Treasury markets have stabilized following Moody’s downgrade and passage of the One Big Beautiful Bill, suggesting investor demand remains solid and fears of a mass U.S. bond sell-off are likely overstated.

Obviously, headlines are swirling at a rather quick pace, so it is important to keep the lines of communication open. This blog is an updated installment to our series we have been publishing since the beginning of the year. Here are our latest thoughts following last week’s whirlwind news:

Trump

“Tariffs on, Tariffs off” and repeat. The past couple of weeks have seen a China “deal” coming out of meetings in Switzerland. And then it was EU tariffs being increased. Then it was EU tariffs off. Then it was China not playing by the rules. This is the tariff volatility to expect approaching the early July deadlines.
The One Big Beautiful Bill made its way through Congress, only to find significant opposition in the Senate. Something will get done over the summer, but the Senate is going to have their say in the meantime. The State and Local Tax deduction (SALT) is one of the more important consumer stimulus aspects of the bill, and the cap is currently set at $40,000. That is what to watch for whether or not the bill will be a tax cut for consumers into 2026.
Consumers have not pulled back—yet. While many of the surveys point to a deterioration in sentiment, the consumer has said one thing and done another. Earnings from companies ranging from Costco to Ulta have shown resilience, even strength. While not evenly spread across retailers, the impact of tariffs on U.S. consumer spending have not shown up in the results.
Looking forward, the volatility of tariffs and the uncertainty around the final language in the tax bill will dominate the headlines and markets. But these uncertainties are likely to be resolved in the coming months (the 90-day deadline for the tariff delay and the summer for the tax bill). Investors would be wise to look through the noise to the likely outcomes and prepare accordingly.

Powell

Fed Chair Powell met with President Trump in person for the first time since 2019. While reports indicate the President told Powell the Fed is making a mistake by not cutting rates, the Chair stuck with his messaging that future monetary policy decision-making will be strictly data-dependent.
Along those lines, recent Fed-speak has centered on the premise that the FOMC will not have enough information for a potential policy decision until September, at the earliest.
The June 18 Fed meeting will contain the Summary of Economic Projections, which includes the dot plot. It’s a close call whether the current median Fed Funds forecast remains at two rate cuts or is downshifted to perhaps only one.
The voting members will more than likely emphasize heightened uncertainty to the outlook with risks for higher unemployment and higher inflation both at play.
In our opinion, our baseline of one or two rate cuts for this year remains the reasonable case scenario.

Rates

After the initial selling, especially in longer-dated maturities, following Moody’s downgrade and the passage of the One Big Beautiful Bill, Treasury (UST) market trading has settled down a bit with 10 and 30-year yields now a few basis points lower than two weeks ago.
We feel concerns of Selling America are overblown, as last week’s slate of UST fixed and floating rate coupon auctions saw relatively solid domestic and foreign demand. Anxieties following the recent weak showing at the 20-year bond auction failed to take into consideration that this maturity has essentially been investors’ least favorite UST security since its inception.

Conclusion

Our advice remains: stay tuned and don’t get too caught up in the day-to-day headlines because this is going to be a very fluid situation, with lots of volatility.

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