The announcement of a 90-day pause in the U.S.-China trade war, and that both countries agreed to drastically reduce tariffs on each other’s imports during that time, sent stocks and Treasury yields soaring Monday. Futures traders also sharply cut the odds of a Federal Reserve interest rate cut in July, pushing the likely timeline of a Fed rate cut to the fall.
All of which may be good news for 401(k) balances but may spell disappointment for prospective homebuyers, with mortgage rates likely to rise in the short term.
News that the U.S. and China had retreated from their respective tariff rates of 145% and 125% first trickled out Sunday, with the White House’s official X account posting a quote from Treasury Secretary Scott Bessent, which stated that the two countries had made “substantial progress” in trade talks during a high-level meeting between trade representatives in Switzerland over the weekend.
In a Monday morning press conference in Geneva, Bessent laid out the details: The U.S. and China would reduce tariffs on each other’s imports by 115% for the next 90 days as they continue to hash out the framework of a potential trade deal. Monday’s announcement meant that China will still impose a 10% levy on U.S. imports, while the U.S. tariff rate on Chinese goods will be 30% for the time being.
Equity markets reacted giddily to the Treasury secretary’s announcement, with the Dow Jones Industrial Average jumping more than 1,000 points, or 2.7%, in early trading and the S&P 500 index up 2.6% at the opening bell.
As investors flocked to equities, many dumped U.S. Treasury bonds in the process, sending bond yields higher. The 10-year Treasury yield — which closely correlates to 30-year mortgage rates — climbed nearly 10 basis points to 4.469% in early trading Monday.
While less closely tethered to the federal funds rate set by the Federal Reserve, mortgage rates are indirectly influenced by that benchmark interest rate.
On May 8, following the Fed’s announcement that it would keep the fed funds rate at its present range of 4.25% to 4.5%, roughly 60% of futures traders predicted that the Fed would cut rates at its July monetary policy meeting, according to the CME FedWatch tool. Following Monday’s tariff announcement, nearly 60% of traders now think the Fed will hold rates steady in July and wait until September to ease.
Some economists were surprised by the degree of tariff cuts that came from the Geneva talks.
“I thought tariffs would be cut to somewhere around 50%,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management in Hong Kong, according to Reuters.
But other economists were less impressed by the outcome of the trade negotiations.
“As the U.S. and China step back from a needless trade war, it is worth noting that (a) U.S. tariffs on China will remain high (30%) and will hurt mainly U.S. consumers; and (b) Trump has obtained absolutely nothing from China for all the chaos he generated. Zilch,” Dani Rodrik, an economist at Harvard University, wrote on Bluesky.
President Donald Trump was quick to claim progress on the trade talks, posting on his social media platform Truth Social over the weekend that his trade envoys had a “very good meeting today with China, in Switzerland. Many things discussed, much agreed to. A total reset negotiated in a friendly, but constructive, manner.”
Trump told reporters during a press conference Monday that he may speak with China President Xi Jinping this week regarding the ongoing trade tensions.
“I’ll speak to President Xi, maybe at the end of the week,” Trump said.
