(Bloomberg) --
Traders will likely reassess the Federal Reserve’s path of interest-rate cuts as a truce in the U.S.-China trade war ease concerns over the outlook for global growth.
“The tariff threat will linger for some time, weighing further on U.S. business investment plans,” said Sean Callow, senior currency strategist at Westpac Banking Corp. in Sydney. “This will concern the Fed at the July meeting, but confirmation of the talks resuming should help further reduce market pricing for” a 50-basis-point cut, he said.
Futures traders expect the U.S. central bank to lower rates by about a percentage point in the coming year. They have priced in a 100% probability of a cut in July, with some even predicting a 50-basis-point reduction, prompting Fed Bank of St. Louis President James Bullard to caution that such a move would be “overdone.”
While investors cheered President Donald Trump’s decision to put on hold new tariffs on Chinese goods and allow U.S. suppliers to sell some products to Huawei Technologies Co., it’s unclear whether Beijing and Washington can overcome their differences. The Fed held interest rates steady in June, but signaled a willingness to ease should weak growth and inflation persist.
The trade truce “should lead to some paring back of aggressive rate cut
expectations, at least temporarily,” said Nader Naeimi, Sydney-based head of dynamic markets at AMP Capital Investors Ltd.
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