Easing trade tensions between the US and China, coupled with cooler-than-expected inflation data, are prompting Wall Street firms to revise their recession predictions downwards, suggesting the Federal Reserve will likely maintain a patient stance on interest rates. JPMorgan Chase and Barclays have adjusted their forecasts to reflect a more stable economic outlook following the US-China agreement to reduce some tariffs.

Financial markets have also adjusted, with traders now anticipating more gradual interest rate cuts from the Fed, beginning later in the year. The Labor Department’s report showing a 2.3% rise in consumer prices for April, the smallest year-over-year increase in over four years, has reinforced these expectations.

While the easing of trade tensions offers relief, uncertainty surrounding future tariff policies will likely keep Fed policymakers cautious for now. Fed Chair Jerome Powell recently indicated a need for more clarity on the economic impact of evolving trade policies before adjusting rates, noting that inflation remains above the Fed’s 2% target. Despite President Trump’s renewed calls for lower rates, the Fed is expected to proceed cautiously, balancing inflation concerns with the reduced risk of an immediate economic downturn.

End Notes

Source: https://www.reuters.com/world/us/fed-stay-patient-amid-cooling-trade-war-inflation-2025-05-13/