What Happened: On Monday, macro strategist Craig Shapiro shared his views on X, commenting on the narrowing odds of an interest rate cut by the Federal Reserve following the de-escalation of the trade war with China.
He says the odds in favor of an aggressive rate cut were spurred by the China trade embargo increasing potential “left tail economic outcomes,” which essentially refers to unexpected or severe economic events hitting growth and employment figures this year.
However, with a tentative 90-day pause in tariffs on China now in place, Shapiro said, “the Fed should feel even more comfortable with their idea that a long pause makes more sense.”
Shapiro argues that the fallout from earlier tariff shocks, paired with worsening fiscal dynamics, could push the Fed to hold rates steady longer than investors expect.
The central bank will have to assess just how much of a “deficit buster” the tax cuts will be in the absence of spending cuts or meaningful tariff revenue, Shapiro said, posing the question rhetorically.
Looking ahead to the next Federal Open Market Committee (FOMC) meeting, Shapiro suggested that the dot plot, which charts each FOMC member's interest rate expectations, could reflect fewer projected cuts. “The next dot plot will be pulling rate cuts out rather than putting them in,” he said.
For the markets, Shapiro warns that this “increasing timeline” to get incremental Fed liquidity is “kryptonite,” underscoring the growing risk that risk assets face amid tightening conditions.
Why It Matters: Other analysts, such as Louis Navellier, have echoed similar views, arguing that the Federal Reserve will likely be the last major central bank to cut rates amid a broader global easing cycle.
President Donald Trump has repeatedly criticized the Federal Reserve for not cutting interest rates fast enough, at one point even exploring options to remove Chairman Jerome Powell from his post.
Despite growing pressure, however, the Fed and its chair have remained defiant, deciding to hold rates steady for the third consecutive meeting during the most recent FOMC meeting last week.
Late last month, Shapiro had predicted rather accurately that Trump would cave to China, Powell, the markets, and the deficit, and that the second Trump administration would be in no way different from the first one.
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