Traders have significantly reduced their expectations for Federal Reserve interest rate cuts in 2025 following a recent truce in the US-China trade war, which includes a 90-day pause on tariffs. Fed funds futures now price in approximately two rate cuts by the end of the year, down from previous bets of around four cuts. The probability of a rate cut in June has dropped sharply to 8% from 17% last Friday and 78% a month ago, while the odds of a July cut have fallen to 40% from 60%. The first expected Fed rate cut is now anticipated in September, with a second cut likely in December. This shift aligns more closely with the Fed's stated plan to wait for greater economic clarity before easing monetary policy. Concurrently, the US 10-year Treasury yield has fluctuated, initially falling amid trade optimism but later climbing to a one-month high. Inflation data showing cooling pressures and the reduced risk of a trade war have contributed to the changing market sentiment. Meanwhile, the Bank of Japan (BOJ) has signaled intentions to continue raising interest rates if economic conditions improve. BOJ Deputy Governor Uchida noted that Japan’s economic growth is expected to slow to around its potential before accelerating again as overseas growth resumes. He also indicated that underlying inflation and medium- to long-term inflation expectations are likely to stagnate temporarily. BOJ board members remain vigilant about the potential impacts of US tariff measures but have raised the probability of rate hikes this year to about 80% following progress in US-China tariff negotiations. Overall, the easing of trade tensions between the US and China has led to lower recession odds in the US and a recalibration of monetary policy expectations in both countries.