Since winning the Oval Office Trump has lobbied the Federal Open Market Committee (FOMC) and its chairman, Jerome Powell, to lower the base rate that currently sits between 4.25% and 4.5%.

Thus far the Fed chairman has refused to bow to pressure from the White House, even when the president insinuated that Powell would be removed from his post if he didn’t comply.

Part of the resistance by the FOMC to cut rates was uncertainty in the economic outlook, partially attributable to Trump’s tariff policy.

After all, the dual mandate of the FOMC is to keep inflation to 2% while striving for maximum employment.

Trump’s tariff policy—which prior to Monday was highest on China with a rate of 145%—led to fears of price rises courtesy of importers and exporters passing on their cost increases to consumers, which the vast majority of companies said they intended to do.

But with Treasury Secretary Scott Bessent confirming yesterday that a 90-day reduction of 115% had been agreed between the U.S. and China—one of America’s largest trading partners—some of those fears can begin to abate.

Not only do analysts believe the temporary reprieve bodes well for negotiations with China moving forward, they also believe it could also be indicative of wider deescalation by the Trump cabinet when it comes to conversations with other major trading partners.

Rate cut in 2025?

As such, expectations of a rate cut are firming up in the longer term even if uncertainty remains high in the near term.

As Deutsche Bank’s Jim Reid wrote in a note seen by Fortune this morning: “If the direction of travel is further tariff cuts then the risks are clearly back to the upside. For inflation, our economists suggest there is now some downside risks to our 3.6% core PCE forecast for this year.

“However, upside risks remain from sectoral tariffs and greater passthrough from tariffs to consumer prices in response to the broader weakening in the dollar. We maintain our view that the Fed will find it hard to ease in the near term and the first cut pencilled in for December remains the base case.”

David Doyle and Chinara Azizova, economists at Macquarie, echoed Reid’s view: “The Fed has been focused on the increase in uncertainty. This will remain the case, although the announcement may remove some of the downside risk that had been prevalent had the higher tariff rates remained in effect.”

The firm’s baseline remains that the FOMC will hold through the rest of 2025 and cut by 50 basis points in 2026.

Conversely David Mericle, chief U.S. economist at Goldman Sachs, argues that the China announcement may have actually pushed a cut back because the Fed won’t be forced to axe rates in order to foster economic activity had tariffs continued.

He outlined that Goldman had assumed for deescalation in its forecasts but that tariff levels had come down faster than expected, leading to recession odds being axed to 35% and growth expectations rising by 0.5 percentage points.

“Under our new economic baseline, the rationale for rate cuts shifts from insurance to normalization as growth remains somewhat firmer, the unemployment rate rises by somewhat less, and the urgency for policy support is reduced,” Mericle wrote yesterday. “We expect the Fed to begin a series of three cuts later than we had previously expected (Dec. vs. our prior expectation of July) and to implement them at every other meeting rather than sequentially.”

Fed needs more flexibility

The debate over when and why the FOMC might cut should not even be an issue argues Jeremy Siegel, emeritus professor of finance at the Wharton School of the University of Pennsylvania.

Writing in his weekly column for WisdomTree, where he is senior economist, Siegel argues: “I’ve long argued monetary policy in an ample reserves regime requires far more flexibility than the Fed currently employs. Historically, the Fed Funds Rate moved quickly and frequently in response to evolving conditions.

“Now, every basis point move is scrutinized like a moon landing, and any change is viewed as the beginning of an irreversible trend. This lack of tactical flexibility constrains the Fed’s ability to mitigate shocks and contributes to policy inertia.”