Wall Street "holds its breath" between the game of tariffs and Fed interest rates

Don’t be fooled by the temporary blues, though. Behind the scenes, a tense game of chess is being played between the White House and the Federal Reserve, with global financial markets hanging on every move.

On one side are unpredictable negotiating moves, on the other side is the Fed's calculating patience, and investors are "holding their breath" waiting for the verdict from the upcoming profit reporting season.

Wall Street calm amid tariff storm

The tariff storm continues to escalate. Just one day after announcing tariffs on 14 trading partners, Mr. Trump continued to increase the pressure by officially announcing a 50% tariff on copper and declaring that he would target two vital industries: semiconductors and pharmaceuticals. He also did not forget to hint that "at least 7 more announcements" would be announced during the day.

However, unlike Monday’s panic sell-off, the market’s reaction this time has been more subdued, thanks to experience and expectations. Investors seem to be reading the past, seeing this as a prelude to gaining leverage at the negotiating table rather than a foregone conclusion.

The extension of the tariff deadline to August 1 has bought valuable time, with European Commission President Ursula von der Leyen confirming that the EU is “working closely” with the Trump administration to find a deal, although it is preparing for all scenarios.

More importantly, according to Mr Bramwell, the market has another “test” to hold on to.

“They will only react if they see the impact of tariffs in their second-quarter earnings reports next week. But if earnings continue to improve, the market will have more reason to be patient and wait for the negotiations to come to an end,” he said. That is the big bet on Wall Street: whether the internal health of businesses is strong enough to withstand the policy storm.

Phố Wall nín thở giữa ván cờ thuế quan và lãi suất Fed - 1 — On the morning of July 9 (US time), futures contracts of the three major US stock indexes all increased slightly (Photo: ETMarkets).

Fed between "double bullets" of inflation and growth

The Fed is facing its own conundrum. Tariffs have left it caught between the two fires: the risk of rising inflation from higher prices for imported goods, and the risk of slowing economic growth from disrupted supply chains and higher business costs.

Given the uncertainty, the Fed remains extremely cautious. All eyes are on the minutes of the June meeting, scheduled for release at 2 p.m. on July 9, US time (1 a.m. on July 10, Vietnam time). Traders will dissect every word for clues as to when the Fed might resume its rate-cutting cycle.

The chances of the Fed acting in July are virtually zero, but the CME Group's FedWatch tool paints a different picture over the medium term, with the probability of a September rate cut now sitting at around 63%. That's telling, suggesting the market still believes the Fed will eventually have to act to support the economy if trade tensions don't ease.

Personal stories in the big picture

After the S&P 500 and Nasdaq hit new highs last week on the back of strong jobs reports, this week's focus will shift to jobless claims data due on July 10.

This indicator is important in assessing whether the labor market remains strong. Meanwhile, the Dow Jones Industrial Average is now only about 1.9% away from its all-time high - a very close but challenging distance.

The markets will be tested from now until the August 1 deadline. The “chess game” between President Trump’s tariffs and the Fed is still unpredictable. But one thing is certain: the final outcome will be decided not by tweets or speeches, but by the actual numbers in corporate earnings reports and on the payrolls of American workers.

Wall Street is holding its breath, but it's a calculated hold.

Source: https://dantri.com.vn/kinh-doanh/pho-wall-nin-tho-giua-van-co-thue-quan-va-lai-suat-fed-20250709210922152.htm