When Federal Reserve Chairman Jerome Powell meets the news media today, he will face difficult questions on trade, tariffs, immigration and fiscal policy.
His answers to those questions will drive whatever volatility takes place across asset classes given the sensitivity of the U.S. 10-year Treasury yield and the American dollar to growing uncertainty around trade policy.
In addition, with the Fed unlikely to cut rates today or in the near future, markets will be looking Powell’s remarks for clues of what is to come. The Fed is expected to keep the federal funds rate unchanged in a range between 4.25% and 4.5%.
While our estimate of the optimal policy rate implies a need for further cuts until that rate stands between 3.75% and 4%, those cuts may not happen because of the pervasive uncertainties around trade and immigration policy.
Read RSM’s global economic outlook for 2025 in the latest issue of The Real Economy.
Interest rate differentials between the U.S. and its major trading partners will be the primary driver in currency valuations once Trump administration’s tariff policy is clarified.
In the meantime, this policy uncertainty will provide a combustible mix that implies a heightened risk of asset volatility in the weeks ahead.
