How tariffs are judged and how the Federal Reserve cuts rates are now tightly linked together.

The market's expectations for the Fed's rate cuts by 2026 are all over the place—some bet on 1 cut, others on 6—showing a high level of uncertainty. The key issue is that the outcome of tariff rulings will directly influence these expectations.

If tariffs are overturned, the resulting lower import costs could ease inflation and theoretically free up room for the Fed to cut rates. But there are complications behind this: refunds worth hundreds of billions of dollars mean increased government debt issuance, which could push market interest rates higher and limit room for easing. These opposing forces are constraining each other, making market pricing difficult.

Even more tricky is the independence of policy itself. Kevin Hasset, a top contender for the next Fed Chair, has a complex background—he is a core policy advisor advocating for rapid rate cuts to stimulate economic growth. This ties monetary policy to political intentions, raising concerns about whether the Fed will truly remain independent.

If tariff rulings cause short-term economic pressure, the government might pressure the Fed to increase easing. This would damage the Fed's credibility and create a more complex transmission chain: Trade Policy → Fiscal Conditions → Monetary Policy, with each link interconnected.

As a result, interest rate fluctuations will occur around the time of the rulings. Instead of focusing solely on economic data, investors should pay more attention to hints about policy bias in Fed officials' speeches. That is the key to understanding where the market is headed.