Trump’s tariff warnings leave Fed rate forecasts largely unchanged.

Markets Remain Unfazed by Trump’s Renewed Tariff Threats

Financial markets are brushing off U.S. President Donald Trump’s latest escalation in tariff rhetoric, signaling confidence that a compromise will ultimately prevail.

Earlier this week, the Trump administration dispatched letters to 14 countries, warning of increased tariffs on exports to the United States beginning August 1. The initial 90-day tariff pause, set to expire on July 9, will not be extended, Trump declared on Truth Social Tuesday, confirming that new tariffs would take effect as planned.

Yet market participants appear to be sticking with the belief in the so-called “Trump Always Chickens Out (TACO)” principle, as reflected in stable U.S. interest rate expectations.

Rate Cut Expectations Hold Steady

According to the CME’s FedWatch Tool, markets are still pricing in two 25-basis-point rate cuts this year, with the first anticipated in September.

While traders have ruled out a July rate cut following last week’s hotter-than-expected U.S. jobs report, the outlook for September remains intact despite Trump’s tariff warnings. The lack of any notable market reaction suggests that investors do not foresee significant inflationary pressures arising from potential new tariffs — otherwise, traders would likely have priced out the expected September rate cut as well.

This stands in sharp contrast to March, when earlier tariff threats from Trump prompted traders to price in rapid-fire rate cuts starting as soon as June. As ForexLive noted, markets now likely expect further delays or indefinite suspension of tariff deadlines, leading to negotiations and eventual trade deals rather than immediate escalation.

Volatility and Markets Stay Calm

The MOVE Index, which tracks the options-based 30-day implied volatility in U.S. Treasury notes, continues to drift lower — a stark change from earlier this year when fears over trade wars and fiscal risks drove the index from 86.00 to 139.00 between February and early April.

U.S. equity markets and bitcoin have also shown little reaction to the renewed tariff threats.

On Monday, the S&P 500 slipped 0.8% to 6,210, but quickly recovered to 6,225 on Tuesday.
Bitcoin (BTC), the world’s leading cryptocurrency, remains largely rangebound above $105,000, according to CoinDesk data.

Both assets reached their peaks in February and trended lower through March and early April as the initial round of tariff tensions flared.

Dollar Gains Modestly

Meanwhile, the U.S. Dollar Index (DXY), which measures the greenback’s value against major currencies, rose 0.55% on Monday to 97.60 and has since held near those levels. The index is currently testing a bearish trendline stemming from highs recorded on February 3.

For now, financial markets seem content to wait out the latest round of tariff threats, betting that negotiations — rather than a full-scale trade war — remain the more likely outcome.