Federal Reserve Chair Jerome Powell's remarks on tariffs and supply shocks have sparked a notable shift in US bond market sentiment. Traders are now betting again on potential rate cuts this year, reversing earlier skepticism. Powell emphasized that President Donald Trump's sweeping tariffs caused only a temporary price surge and that the Fed lacks tools to address supply-driven inflation, such as oil price spikes from the Ukraine war.

This has led investors to reassess the likelihood of monetary easing, as the central bank's focus shifts toward managing demand-side pressures rather than external shocks. The market's reaction reflects growing confidence that the Fed may prioritize economic stability over immediate inflation concerns, potentially paving the way for rate reductions. Analysts note this pivot could influence long-term bond yields and investor strategies.

The Fed's cautious approach underscores the complexity of balancing inflation control with economic growth in an era of geopolitical volatility.