Markets Rally on Trade Truce & Inflation Relief

The United States experienced an intense week in the economic, financial and political spheres, marked by advances in the trade relationship with China, mixed signals from the Federal Reserve and a renewed prominence of President Trump on the international scene. The main economic news came over the weekend with the announcement of a tentative agreement between the US and China to temporarily reduce tariffs. The pact will last for 90 days, during which time both sides will seek to move toward a broader agreement. As part of the understanding, Washington will reduce tariffs on Chinese goods, including those linked to fentanyl, from 145% to 30%, while Beijing will lower its tariffs from 125% to 10% on U.S. goods and suspend several countermeasures related to rare minerals. Although the relief is limited and does not cover general sectoral tariffs, the market received the news as a positive sign after months of increasing tension.

At the same time, the Fed decided to maintain the interest rate in the 4.25% - 4.50% range for the third consecutive meeting, in line with market expectations. The Fed's statement highlighted the strength of the labor market and the progress of the disinflation process, although it was cautious about the recent increase in tariffs promoted by the Trump administration, which could have a negative impact on growth and put upward pressure on prices. Jerome Powell reiterated that the Fed will adopt a wait-and-see approach, and the market now assigns a high probability that the rate will remain unchanged at the June meeting, with three cuts in the second half of 2025, which would close the year in the range of 3.50% - 3.75%.

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