At 14:48 GMT, the U.S. Dollar Index is trading 99.008, down 0.096 or -0.10%.
Federal Reserve’s Rate Cut Outlook Hinges on Tariff Policy
The Fed’s monetary path is increasingly tethered to fiscal and trade decisions. Waller outlined that a potential rate-cut scenario remains viable only if tariffs can be reduced to around 10% and finalized by mid-year. Otherwise, the inflationary risks of aggressive trade measures could derail any dovish pivot.
Markets currently price in modest easing expectations, but the conditional nature of those bets reflects skepticism about Washington’s ability to coordinate policies effectively. Rising tariffs could pressure prices and weaken growth simultaneously, a stagflation risk that would constrain Fed flexibility despite the 4.25%-4.50% current fed funds target range.
Fiscal Drift Spurs “Risk-Off” Sentiment Toward U.S. Assets
The federal government’s lack of fiscal restraint continues to sour market sentiment. Bond yields are climbing not only on inflation fears but also from growing uncertainty about U.S. debt sustainability. Republican budget initiatives are expected to push borrowing even higher, exacerbating concerns about long-term solvency.
With interest payments now consuming a significant share of federal outlays, markets are demanding a higher premium to hold U.S. debt. This feedback loop—rising debt leading to higher yields and thus even greater debt service costs—raises the stakes for fiscal consolidation.
