The Federal Reserve has been hesitant to lower interest rates, and it’s been on hold so far this year after cutting at the end of last year, because it’s been waiting to see how much President Donald Trump’s tariffs will hurt the economy and raise inflation. While lower rates can goose the economy by encouraging businesses and households to borrow, they can also accelerate inflation.
The yield on the 10-year Treasury fell to 4.36 per cent from 4.41 per cent late Wednesday and from roughly 4.80 per cent early this year.
Besides the inflation data, a separate report on jobless claims also helped to weigh on Treasury yields. It said slightly more US workers applied for unemployment benefits last week than economists expected, and the total number remained at the highest level in eight months.
“We believe that were it not for the uncertainty caused by the tariffs, the combined information coming from the inflation and labour-market data would have compelled the Fed to have resumed cutting its policy rate by now,” according to Thierry Wizman, a strategist at Macquarie.
The Fed’s next meeting on interest rates is scheduled for next week, but the nearly unanimous expectation on Wall Street is that it will stand pat again. Traders are betting it’s likely to begin cutting in September, according to data from CME Group.
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Trump’s on-and-off tariffs have raised worries about higher inflation and a possible recession, which sent the S&P 500 roughly 20 per cent below its record a couple of months ago. But stocks have since rallied nearly all the way back on hopes that Trump would lower his tariffs after reaching trade deals with other countries.
Many of Trump’s tariffs are on hold at the moment to give time for negotiations, but Trump added to the uncertainty late Wednesday when he suggested the United States could send letters to other countries at some point “saying this is the deal. You can take it or you can leave it.”
In stock markets abroad, indexes were mixed across Europe and Asia amid mostly modest movements. Hong Kong’s Hang Seng was an outlier, and it tumbled 1.4 per cent to give back some of its strong recent gains.
Hong Kong’s index is still up nearly 20 per cent for the year so far, towering over the the US stock market’s gain of less than 3 per cent.
