US stock markets reached new record highs last week, buoyed by optimism surrounding trade developments and potential shifts in interest rate policy, CNBC reports.
Yet, despite the strong market performance, economists and analysts warn that the outlook for the world’s largest economy remains deeply uncertain.
The S&P 500 closed at an all-time high on Friday, rebounding from sharp losses earlier in the year, when it had dropped nearly 18% by mid-April. The recovery comes as investors respond positively to a provisional trade agreement between the United States and China and the rollout of a new US-UK trade deal, which lowers tariffs on British car and aerospace exports.
However, market gains are unfolding against a backdrop of unclear monetary policy, unresolved trade disputes, and uncertainty over inflation trends, prompting some experts to caution that the current optimism may be premature.
Although recent developments in US trade policy have supported investor sentiment, the broader picture remains complicated. The US-UK agreement, for instance, keeps a baseline 10% tariff on most goods and leaves steel tariffs unresolved, contributing to continued price pressures in key sectors.
Negotiations with other trade partners, including Canada, the European Union, Japan, Taiwan, and India, are ongoing and subject to last-minute changes. Over the weekend, for example, Canada temporarily withdrew its proposed digital services tax, prompting the US to resume trade discussions. But experts caution that similar disputes could derail progress elsewhere.
Bob Parker, senior advisor at the International Capital Markets Association, warned that investors may be underestimating the complexity of global trade talks.
“Markets at the moment are taking a very naive view of what’s happening on the trade front,” Parker told CNBC. “We could easily be having this discussion at the end of the year or going into 2026.”
At the heart of the economic uncertainty is monetary policy, as the Federal Reserve evaluates the potential inflationary impact of ongoing tariff shifts. Speaking on CNBC’s Squawk Box Europe, Atlanta Fed President Raphael Bostic said economic modeling remains “very difficult” because “things are changing constantly.”
Bostic noted that more businesses are delaying key decisions on pricing and strategy until 2026, suggesting that the full impact of tariffs may take longer to materialize than many assume.
The Fed’s most recent “dot plot,” which charts policymakers’ expectations for interest rates, reveals a wide divergence in outlooks. According to CME Group’s FedWatch tool, markets are currently pricing in a 50% probability of three quarter-point rate cuts by year-end, with a smaller chance of a more aggressive cut.
Some of the recent rate expectations are linked to political developments. President Donald Trump has continued to criticize Fed Chair Jerome Powell for maintaining current interest rates, which are in the 4.25% to 4.5% range. Trump has indicated he may announce Powell’s successor before the end of his term—a move that economists warn could inject more volatility into markets.
Gilles Moëc, chief economist at AXA Investment Managers, said the idea of a “shadow Fed,” with a new chair publicly waiting in the wings, could discourage foreign investors and trigger renewed uncertainty in global markets.
