Knowledge Center
Market Currents – 6/12/25
- May Rebound Masks Lingering Anxiety. After taking repeated tariff-related blows in April, conditions steadied in May on news that the U.S. is making progress with several key trading partners, including a framework agreement with the U.K. and signs of renewed cooperation with Canada and Mexico on agricultural and industrial goods. Yet, beneath the surface, markets remained highly reactive – swinging in response to even subtle shifts in inflation readings, Fed signals, and trade-related developments. Sentiment has improved modestly, but remains cautious. Unresolved questions around tariffs, the Fed’s next move, and the durability of consumer spending amid a gradually softening labor market continue to cloud the broader outlook.
- Fed Holds Rates Steady. The Federal Open Market Committee (FOMC) voted unanimously to keep the federal funds rate unchanged at its May meeting. Although recent data points to modest cooling in growth and hiring, it has not been sufficient to warrant immediate policy action. The Fed’s tone suggests a cautious inclination toward easing, but concerns that new tariffs could reignite inflation have prompted a more patient stance. Chair Powell emphasized the Fed’s reliance on incoming data and long-term objectives, reaffirming the central bank’s independence in the face of rising external calls for lower rates.
- U.S.-China Trade Tensions Remain the Focal Point. Of all ongoing tariff discussions with multiple nations, the U.S. – China relationship remains the most closely watched – and the most complex. Negotiations center on a broad set of longstanding and sensitive issues, including rare earth supply chains, the flow of advanced semiconductor technologies, intellectual property protections, and barriers to U.S. market access. After both countries imposed retaliatory tariffs earlier this spring, recent weeks have brought a more conciliatory tone. Senior-level talks are now underway following the first direct conversation between Presidents Trump and Xi since the start of Trump’s second term, raising hopes for progress in a protracted and multifaceted standoff.
- Fiscal Pressures Stir Market Responses. The recently passed government spending bill, which extends tax cuts, increases defense funding, and reduces outlays for social programs, has reignited investor concerns over the growing federal deficit. Long-term Treasury yields drifted higher as bond markets responded to fiscal concerns, with “bond vigilantes” demanding greater compensation for rising deficit risks. The move has also weighed on the U.S. dollar, which softened in recent weeks amid renewed focus on debt sustainability. While the bill reflects the administration’s fiscal priorities, markets will be watching closely to see how it shapes inflation expectations, borrowing costs, and overall economic momentum in the months ahead.
- Market Outlook: Resilience Can Continue but with Bouts of Volatility. Markets welcomed May’s relative calm, with encouraging corporate earnings reports and signs of tariff de-escalation helping drive a steady rebound from the early April lows. The improved backdrop has lifted sentiment, but sustaining that momentum will likely require further progress on trade negotiations, greater policy clarity, and continued evidence that inflation is easing. We have remained deliberate and disciplined throughout recent volatility, and will continue to navigate evolving conditions with the same focus, agility, and long-term perspective.