Tariffs Keep U.S. Interest Rates Elevated as Markets Adjust to Trump’s Economic Agenda

U.S. Federal Reserve Chair Jerome Powell revealed that tariffs enacted by President Donald Trump are the primary reason interest rates remain high in 2025. Powell stated that without these tariffs, the Fed likely would have implemented rate cuts this year, continuing from the last cut in December 2024. The larger-than-expected inflationary impact of tariffs has pushed the central bank to hold rates steady, despite its initial projections. This revelation underscores how geopolitical and fiscal decisions are reshaping the country’s monetary trajectory.

The U.S. stock market reflected these concerns on Tuesday, with the S&P 500 dipping 0.11% from its recent record high. Tesla shares also declined after Trump made remarks questioning company subsidies, while Asian-Pacific markets mostly fell. However, Singapore’s stocks reached an all-time high, bucking the regional trend. This volatility signals investors’ shifting sentiment in response to economic uncertainty fueled by government policy decisions.

Electric vehicle manufacturer XPeng reported consistent growth, delivering over 34,000 units in June—its eighth consecutive month of exceeding 30,000 units. Despite this momentum, it trails far behind market leader BYD, which delivered more than ten times that number. The EV sector remains highly competitive, and XPeng’s performance shows resilience in a turbulent global economic landscape.

On the legislative front, Trump’s sweeping economic bill narrowly passed the Senate, with Vice President JD Vance casting the deciding vote. The bill, though projected to increase the U.S. deficit, is seen by some financial institutions as a potential stimulus. It now returns to the House for final approval. If passed, it could shift the economic outlook, offering near-term growth at the cost of long-term fiscal stability.

Elsewhere, hedge funds are increasingly betting against the Swiss franc through “carry trade” strategies, exploiting the interest rate differential. Meanwhile, Germany’s defense industry is experiencing a major export boom, with arms sales reaching €13.2 billion in 2024. Around 80% of these exports are directed to allied nations, highlighting shifting global defense priorities amid geopolitical tensions.

Source: CNBC