The market in the second half of the year is dominated by high deficits and uncertainty over tariffs, the change in chairmanship of the Federal Reserve may cause fluctuations.

As 2025 unfolds in the second half, the financial markets are expected to continue to be dominated by high fiscal deficits and uncertainty surrounding tariff policies. Bond yields are expected to continue playing a "steering wheel" role, maintaining their intermittent dominance from the first half of the year. However, market volatility may increase again in the summer after June. Investors will begin to focus on the next Federal Reserve Chairman nominee, to be announced by President Trump. Although current Chairman Powell's term doesn't end until May 2026, Trump is expected to make personnel appointments much earlier. Trump has repeatedly criticized Powell's rate policy, especially after the latest inflation data released this week came in lower than expected. The data shows that the U.S. May Consumer Price Index (CPI) rose 2.4% year-on-year, below market expectations. Trump took the opportunity to reiterate his call for a substantial rate cut. Powell, on the other hand, remains cautious, stating that the Fed is waiting to see if inflation will pick up again. Greg Peters, Co-Chief Investment Officer at PGIM Fixed Income, stated that appointing a Federal Reserve Chairman in advance is "extremely rare," and this move could lead to increased market volatility, pushing the long end of the U.S. bond yield curve higher. He pointed out that as the Federal Reserve is "an extremely important institution," any unusual appointment could have "long-term implications" for the market. However, Peters also noted that the Federal Open Market Committee (FOMC) is a committee of seven members, with the Chairman only having one vote. He added: "The market now generally believes that whoever takes over the Chairman position is likely to lean towards supporting rate cuts." Potential candidates seen by the market to succeed Powell include: former Fed Governor Kevin Warsh, National Economic Council Director Kevin Hassett, and current Fed Governor Christopher Waller. Media reports also suggest that Treasury Secretary Scott Blissett is under consideration. Blissett was reported last year before the election to have told the media that Trump might announce Powell's successor early. Even if the candidate has not officially taken office, their views and forecasts could still have a substantial impact on the financial markets. Blissett pointed out: "The market will closely study who this person is, what they have done in the past, what they have said, and even the sound bites they made during the candidacy period, all of which could cause fluctuations." The upcoming Federal Reserve meeting is not expected to adjust rates, and there is still significant disagreement in the market as to when rate cuts might begin. Rick Rieder, BlackRock's Global Chief Investment Officer for Fixed Income, believes that the possibility of a rate cut in September still exists if the economy continues to show weakness. However, U.S. bank economists predict that rate cuts may not begin until next year. According to their analysis, moderate inflation and the performance of 139,000 new jobs added in May reduce the risk of "stagflation." "This means that the labor market is not weak at the moment, avoiding panic-induced 'bad rate cuts'." They further pointed out that the Fed may have to wait until 2026 to take action in the background of "stable employment and gradually declining inflation." Despite this, Rieder expects that economic growth in the fourth quarter of the U.S. will be very slow, but if uncertainty over tariffs eases, growth is expected to pick up again. Trump has previously indicated a possible increase in tariffs on July 9, but countries in negotiations may have the opportunity to extend the deadline. Blissett also stated this week that negotiations could still be flexible. Currently, the U.S. and China have reached a preliminary agreement on imposing a 55% tariff. Rieder believes that as long as the tariff level stabilizes, the market can gradually adapt: "As long as businesses know where the tariffs are, they can operate." Meanwhile, the U.S. Congress is in negotiations on a tax reform bill. The version passed by the House of Representatives last month is expected to add $2.4 trillion to the deficit over the next ten years. According to the Congressional Budget Office (CBO) forecast, the deficit as a percentage of GDP will rise to 7% by 2026. Facing such fiscal pressure, the bond market may experience a "temporary spike in yields." However, as funds flow into higher-yield assets, these yields may eventually fall back. Rieder pointed out: "There is still a lot of cash in the system, and I believe yields will remain within a certain range." He expects the 10-year U.S. Treasury bond yield to fluctuate between 3.75% and 4.625%, a key indicator with widespread effects on mortgage and other credit rates. If this yield rises rapidly or experiences significant fluctuations, the stock market may also be affected. George Goncalves, Head of U.S. Macro Strategy at MUFG Financial Group, also believes that the 10-year U.S. Treasury bond yield will hover between 4% and 4.5%. He emphasized that economic growth is slowing, and weak labor market conditions will increase pressure on the Fed to cut rates. He questioned: "If that's the case, why wait?" Goncalves pointed out that the main reason the Fed is hesitant to act is concerns about inflation rebounding. But he also bluntly stated: "This concern may be wrong."