Fed to Decide Key Rate on the 7th... Hold Likely
Powell's Remarks in Focus Amid Tariff Uncertainty
Trump: "Pharmaceutical Tariffs to Be Announced Within Two Weeks"
U.S. March Trade Deficit Hits Record High... Stockpiling Ahead of Tariffs
The three major indices on the New York Stock Exchange fell on May 6 (local time). With the Federal Reserve’s interest rate decision just one day away, a risk-averse sentiment has emerged in the market. President Donald Trump’s announcement that he will unveil pharmaceutical tariffs within two weeks is also fueling investor concerns about tariffs.
As of 10:41 a.m. on the same day on the New York Stock Exchange, the blue-chip Dow Jones Industrial Average (Dow Jones Index) was down 173.5 points (0.42%) from the previous trading day, standing at 41,045.33. The large-cap S&P 500 Index fell 27.19 points (0.48%) to 5,623.19, while the tech-heavy Nasdaq Index dropped 111.68 points (0.63%) to 17,732.56.
The major event this week is the Federal Open Market Committee (FOMC) regular meeting. The Fed is holding the FOMC over two days starting today and will decide on the interest rate on May 7. Although concerns about a tariff-induced recession have surfaced, the market largely assumes that the Fed will keep rates unchanged. According to CME FedWatch, the interest rate futures market is pricing in a 96.8% probability that the Fed will maintain the rate at 4.25-4.5% per year this month. Investors are focused on Fed Chair Jerome Powell’s economic outlook, which will be presented at the press conference scheduled immediately after the FOMC. Previously, Powell stated that the level and scope of tariff increases are exceeding expectations and warned that “the impact on the economy, including inflation and slowing growth, will be significant.” This aligns with the market’s concerns about stagflation?a scenario of rising prices and slowing growth.
Tariff concerns are also weighing on investor sentiment. President Trump, responding to reporters’ questions at the White House the previous day about the pharmaceutical tariff schedule, said, “I will announce it within the next two weeks,” and added, “Compared to other countries around the world, we are being treated extremely unfairly and are being taken advantage of.” With the imposition of pharmaceutical tariffs in the United States appearing imminent, the market is on high alert over the possibility of a renewed escalation in the tariff war.
The market is searching for signs of progress in trade negotiations between the United States and other countries, but no clear agreement has yet been announced. U.S. Treasury Secretary Scott Besant reaffirmed President Trump’s remarks in an interview with CNBC the previous day, stating, “We are very close to some agreements,” and that a trade deal could be reached as early as this week. According to Bloomberg, India has reportedly proposed to the United States the elimination of tariffs on certain goods.
Concerns over U.S.-China trade tensions also remain high. While the two countries’ tariff war appears to have avoided further escalation for now, Wall Street analysts warn that the current tariff levels are so high that even if rates are reduced going forward, the economy will suffer significant damage. Billionaire hedge fund manager Paul Tudor Jones expressed concern, saying, “Even if Trump lowers tariffs on China to 40-50%, it would still be the largest tax increase since the 1960s,” and predicted that “growth rates will fall by 2-3%.”
The U.S. trade deficit for March of this year, released on this day, reached a record high due to the impact of tariffs. The U.S. Department of Commerce announced that the March trade deficit increased by 14% from the previous month to $140.5 billion, marking the largest monthly deficit on record. This surge is attributed to companies stockpiling imports in anticipation of the full-scale implementation of President Trump’s tariff policies.
By stock, Palantir Technologies fell 12.64% after its first-quarter sales missed market expectations. Tesla dropped 2.18%, and Nvidia declined 0.68%. Ford rose 3.92%. The company had previously dropped after announcing it would suspend its annual earnings outlook, citing that automotive tariffs would hurt profits, but has since rebounded.
U.S. Treasury yields declined, especially for short-term bonds. The yield on the two-year Treasury note, which is sensitive to monetary policy, fell by 4 basis points (1bp = 0.01 percentage points) from the previous day to 3.8%. The 10-year Treasury yield, the global benchmark for bond rates, remained at the previous day’s level of 4.35%.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
