Markets Grasp at Tariff Delay Hopes

Volatility reigns supreme again. Treasury yields declined ~20 bps overnight following President Trump’s and Treasury Secretary Bessent’s respective comments over the weekend that backed tariffs and pushed back on recession fears. However, this morning’s reports that Trump was considering a 90-day tariff pause spurred an immediate 20 bp climb in rates to intraday highs, a near 40 bp reversal from session lows. Rates then reversed course yet again after the White House denied those “fake news” claims, highlighting the current environment’s fragility. Ultimately, yields closed 10-21 bps higher across a steepening curve, with 2-year and 10-year yields now at 3.76% and 4.18%, respectively.

Fed’s Kugler says tariff-driven inflation is more “pressing” than potential economic slowdowns. Fed Governor Kugler offered hawkish comments today regarding potential tariff impacts on the broader economy. She argued that an influx of consumer spending that occurred prior to the enactment of tariffs should boost near-term economic growth, making inflation a greater current concern. Kugler stated, “The takeaway is that I view, right now, inflation as being more pressing as far as the effects of tariffs that we’re already seeing… maybe this frontloading is going to help, at least in terms of keeping economic activity at the beginning of the year.” The comments paralleled Chair Powell’s statement from last Friday, where he argued that the Fed must remain patient with policy changes, largely due to potential tariff-driven inflationary pressures.

Trump denies tariff-delay rumors but leaves open a confusing door to reconciliation. Soon after reports circulated on social media this morning that tariffs may be delayed for 90-days, the Trump administration said the rumors were false. The event showcased how extreme uncertainty has caused tariff-headline fixation, and more importantly, how any softening of tariff policies could have a pronounced and immediate market impact. While President Trump said he would leave the door open to “fair deal and good deals with every country,” many world leaders are finding it difficult to negotiate with the President. Last night, President Trump said trade agreements would need to eliminate trade deficits, meaning even Vietnam’s proposal to lift all tariffs on the U.S. (in exchange for a delay in U.S. tariff implementation) was rejected by the White House. Some, such as the EU, have said that they are open to negotiations, though they will retaliate if progress isn’t made soon. China, on the other hand, has adopted an aggressive posture, declining to fully-engage in negotiations.