Fed Isn’t Rushing to Cut Rates - Despite Trump’s Push

As market participants await the Federal Reserve's next move, President Donald Trump is increasing pressure on the central bank to cut interest rates. But traders betting on an immediate policy shift may be in for a disappointment. The Fed is holding firm, and markets are signaling that a rate cut may not come as soon as some expect.

Fed Won’t Be Bullied Into Rate Cuts

Trump took to his social media platform, Truth Social, this week to demand lower interest rates, citing the upcoming easing of tariffs. Yet, history suggests the Fed is unlikely to cave to political pressure. Federal Reserve Chair Jerome Powell has previously resisted Trump’s influence, even when faced with public criticism and threats of demotion during his first term.

Fed officials are also doubling down on their inflation concerns. In their latest policy meeting, they left rates unchanged and warned that inflation risks remain tilted to the upside. Traders who were banking on a quick pivot might need to recalibrate their expectations.

Inflation Concerns Could Delay Rate Cuts Further

One of the biggest obstacles to near-term rate cuts is the resurgence of inflation—partly fueled by Trump’s tariff policies. Powell acknowledged that tariffs have contributed to rising prices, though the extent remains uncertain.

The Fed’s Summary of Economic Projections indicates that inflation is expected to fall back to 2%—but not until 2027. If these projections hold, rate cuts in 2025 could be more gradual than markets hope, and certainly not as immediate as Trump suggests.

Market Expectations vs. Reality

The bond market is sending mixed signals. According to the CME FedWatch tool, traders currently see a 79% chance that rates will stay steady in the coming months but a 76% probability of a 25-basis-point cut by mid-year. These expectations may prove optimistic if inflation remains stubborn.

Meanwhile, the 10-year Treasury yield has declined from 4.8% to 4.22%, a sign that bond traders are anticipating softer economic conditions. However, Treasury Secretary Scott Bessent has emphasized that Trump’s economic team is laser-focused on bringing yields even lower—a goal that may clash with the Fed’s broader inflation fight.

Traders, Prepare for More Volatility

Trump’s economic policies, particularly his push for a “reciprocal tariff” regime, introduce another layer of uncertainty. While the administration sees it as a path to economic strength, markets are wary. Tariffs have historically contributed to supply chain disruptions and higher prices, which could force the Fed to hold rates higher for longer.

Moreover, while the administration signals it can tolerate market volatility, Trump’s direct engagement in monetary policy raises concerns about unpredictability. Traders should expect increased market swings as political and economic forces continue to collide in the first year of his second term.

Bottom Line is - Wait-and-See

The Federal Reserve has made one thing clear—it is not in a hurry to cut rates. While Trump’s calls for lower interest rates may energize some market participants, the Fed remains focused on inflation risks, and traders should be cautious about betting on a quick pivot. The ongoing tariff regime, shifting inflation dynamics, and bond market trends suggest a more complex economic landscape ahead.

For now, you should monitor inflation signals, and be prepared for a market environment that may not align with Trump’s aggressive rate-cut narrative.