Duration Dashboard

Treasury yields retreated modestly across the curve despite the Federal Reserve's hawkish hold and President Trump's Friday tariff announcement. The 2-year yield's 5 basis point decline suggests markets had already priced in the Fed's pause, while the resilience at the long end—with 10-year and 30-year yields remaining at extreme 95th-96th percentiles—reflects persistent concerns about fiscal expansion and inflation risks. The curve's modest bull flattening amid significant policy developments reveals a market caught between competing narratives.

Credit Pulse

Credit markets displayed the first signs of caution since Trump's inauguration, with high-yield spreads widening 9 basis points while remaining at historically tight levels. The modest backup in spreads, combined with the VIX rising to 16.20, suggests investors are beginning to price in tariff-related uncertainties. Yet with spreads still in the bottom quintile of their five-year range, credit markets retain substantial optimism about corporate fundamentals and the net impact of Trump's policy mix.

Federal Reserve Policy Outlook

The FOMC statement emphasized that the Committee "will carefully assess incoming data, the evolving outlook, and the balance of risks" in considering future rate adjustments. This language, unchanged from December, reinforces the data-dependent pause that markets now expect to extend through mid-year. Powell's press conference struck a notably neutral tone, avoiding commentary on fiscal policy while emphasizing the Fed's commitment to achieving its dual mandate regardless of the political environment.

Market pricing has adjusted dramatically, with fed funds futures now implying just one rate cut in 2025, down from two cuts expected at year-end. The combination of resilient growth, sticky inflation above 2%, and uncertainty about tariff impacts creates a compelling case for extended Fed patience. The next inflection point may come with the March 18-19 FOMC meeting, which includes updated economic projections that must incorporate early assessments of Trump policy impacts.

Week Ahead: Tariff Negotiations and Economic Data

• January employment report (Feb 7): First jobs data of the Trump era will be scrutinized for any early impacts from immigration policy changes and business sentiment shifts.
• Tariff negotiations intensify: With March 1 implementation looming, expect increased diplomatic activity and market volatility as details emerge about potential exemptions and partner country responses.
• Trump's State of the Union preview: The President's first major policy address to Congress will provide clarity on legislative priorities including tax cuts and infrastructure spending.
• January CPI (Feb 13): Inflation data takes on added importance given tariff announcements, with any upside surprise likely cementing expectations for an extended Fed pause.

US Economic Positioning and Global Context

The week's developments underscore the US economy's unique position—strong enough to absorb policy shocks yet vulnerable to self-inflicted trade disruptions. The Fed's steady hand amid political volatility provides an important anchor for markets, though this stability may be tested as tariff deadlines approach. The limited market reaction to Friday's trade announcement suggests either dangerous complacency or justified confidence in America's economic resilience.

Dollar dynamics: The greenback's mixed performance despite tariff announcements reflects competing forces. While trade uncertainty typically weakens currencies, the combination of relatively hawkish Fed positioning and US growth outperformance continues to support dollar strength. The real test comes as trading partners formulate responses—retaliatory measures could accelerate global monetary divergence and entrench the dollar's haven status despite America being the source of trade tensions.