Baker Market Update
2025-04-17

Short trading week, with Good Friday closing the markets earlier than usual. Good Friday is not the only testament of faith that is taking place in recent or upcoming events. This past Sunday, Rory McIlroy’s completed the ever so sought-after Career Grand Slam at this year’s Masters, overcoming an 11-year major drought. This mirrors resilience investors are exhibiting amid recent financial market turbulence. Despite significant market volatility triggered by new U.S. tariffs and escalating trade tensions, many investors are holding their positions, reflecting a belief in long-term recovery. Just as McIlroy persevered through setbacks to achieve the Grand Slam, market participants are maintaining confidence that despite recent events, American exceptionalism is not dead.

On Wednesday April16th, Jerome Powell addressed the Economic Club of Chicago, highlighting challenges posed by recent U.S. trade policies. Persistent short-term volatility in financial markets following President Donald Trump's "Liberation Day" has fueled speculation that the Federal Reserve might soon respond by lowering its key interest rate or intervening through open market operations. Federal Reserve Chairman, Jerome Powell, expeditiously talked down rate cuts in the near future, quoting “As we gain a better understanding of the policy changes, we will have a better sense of the implications for the economy, and hence for monetary policy”. As expected, the temporary effects of tariffs were a major talking point during his speech, with concerns of high inflation and slower growth echoed for the near term. The chairman did offer some reprieve for long-term investors and consumer alike, mentioning that “Survey measures of longer-term inflation expectations, for the most part, appear to remain well anchored; market-based break evens continue to run close to 2 percent”.

Tensions sparked by the new administration are clearly visible in the world's most liquid markets, foreign exchange, where periods of political uncertainty often trigger sharp movements in currency values. The U.S. Dollar Index (DXY), which tracks the dollar’s value against a basket of six major currencies, including the euro, yen, pound, Canadian dollar, Swedish krona, and Swiss franc, has recently experienced significant downward pressure. Since the beginning of this month, DXY has traded down roughly five percent over the past 17 days. Despite Powell’s, previous and most recent comments, regarding future monetary policy being “data dependent” traders may be overlooking statements from the central bank executive. This is evident in the Fed Funds Futures market, where the implied rate for year-end 2025 dropped from 3.56% on Trump’s “Day of Liberation” to 3.42% today, a decline of 14 basis points.

Next week we have a full slate of Federal Reserve executives set to speak on the outlook of the future U.S. economy, as well as data prints regarding trade, retail sales, business activity and employment. Have a good weekend everyone!