The MSCI regional gauge dropped 0.4% with losses in Australia, Japan and South Korea. Contracts for the S&P 500 fell 0.3% after the index closed lower Tuesday. Treasuries edged down in early Asian trading with 30-year yields topping 5%. The yen pulled back slightly after falling to its lowest level since April.
Federal Reserve Bank of Dallas President Lorie Logan said that while policymakers will likely need to hold rates steady for a bit longer to fully cool inflation as data signaled companies are beginning to pass some tariff-related costs to consumers. Traders priced in somewhat lower odds that the Fed will cut rates more than once this year, and the probability of a move in September is now seen as only slightly higher than 50%.
“With risks still skewed to the upside, we expect the Fed to remain on hold until it gets more clarity about the relative risks to the inflation and labor market outlooks,” JPMorgan Chase & Co. strategists led by Jay Barry wrote in a note Tuesday. The analysts forecast the first rate cut to come in December.
On trade, President Donald Trump said he reached a deal with Indonesia that will see goods from the country face a 19% rate, while US exports won’t be taxed. Trump also said he was likely to impose tariffs on pharmaceuticals as soon as the end of the month and that levies on semiconductors could come soon as well, suggesting that those import taxes could hit alongside broad “reciprocal” rates set for implementation on Aug. 1.
The President also predicted that he could strike “two or three” trade deals with countries before implementing his so-called reciprocal tariffs before they are implemented on Aug. 1, saying that an agreement with India was among the most likely.
Meanwhile, the Office of the US Trade Representative on Tuesday opened an investigation into Brazil over its trade practices. Trump had threatened a 50% tariff on the country.
The consumer price index, excluding the often volatile food and energy categories, increased 0.2% from May. While a decline in car prices helped keep a lid on the figure, goods categories exposed to Trump’s levies including toys and appliances rose at the fastest paces in years.
“While any tariff-induced boost to inflation is likely to be short-lived, with higher tariffs being announced, it would be wise for the Fed to remain on the sidelines for a few more months at least,” said Seema Shah at Principal Asset Management.
Meanwhile, Treasury Secretary Scott Bessent suggested that Fed Chair Jerome Powell should step down from the board when his term is up in May 2026. Late Tuesday, Trump said Bessent is “an option” for the Fed Chair post.
Traders this month have whittled the odds of Fed easing. Strong June employment data released July 3 led them to rule out a cut after the next meeting concludes July 30 and to downgrade the chances of a September cut, which was fully priced in as recently as late June.
