Fed Stands Ready as Leverage Unwinds and Trump Temporarily Stills the Storm

U.S. stocks edged higher Friday following remarks from the White House indicating the Trump administration's confidence in securing a trade agreement with China.

U.S. stocks eked out modest gains Friday following an indication from the White House that the Trump administration is still hopeful of striking a trade agreement with China.

On Friday, the Dow Jones Industrial Average rose 44.24 points, or 0.16%, to close above the 27,000 mark at 27,027.48. The S&P 500 advanced 10.07 points, or 0.34%, to finish at 3,000.47. Meanwhile, the Nasdaq Composite gained 70.43 points, or 0.8%, to close at 9,033.04. For the week, the Dow advanced 0.7%, the S&P 500 gained 1.1% and the Nasdaq increased by 1.8%.

The upbeat tone from the White House came as President Donald Trump expressed strong optimism over the possibility of striking a trade deal with China.

“President Trump is the one who’s willing to walk away from the table if he doesn’t feel like he’s getting a good deal, and he’s made that clear to President Xi,” White House press secretary Karoline Leavitt told reporters Friday.

Highlighting the president’s openness to reaching an agreement, Leavitt added: “The president has made it very clear he’s open to a deal with China. If China continues to retaliate, it’s not good for China.”

The statement arrived as the cryptocurrency market advanced by 4.63% over 24 hours, while BTC broke past the $84K threshold. Gold also held its ground steadily, registering a 2% gain to reach $3,237 per ounce.

At the same time, a report by the Financial Times revealed that Susan Collins, president of the Boston Federal Reserve, affirmed the Fed will “absolutely” assist markets if conditions demand it.

Collins stated that the U.S. central bank certainly has “tools to address concerns about market functioning or liquidity should they arise.” When questioned by the FT about the likelihood of intervention similar to prior instances, such as during the 2008 financial crisis, Collins replied affirmatively, saying the Fed would “absolutely be prepared to do that as needed.”

Earlier this week, the Treasury market experienced considerable disarray, yet the central bank remained on the sidelines—thanks, for now, to Trump’s timely action.

Prior to President Trump’s announcement of a 90-day pause on most reciprocal tariffs, the bond market was experiencing significant turmoil, with leveraged traders facing substantial losses. Rising bond yields, which reflect falling bond prices, signaled massive distress in financial markets. A cohort of analysts attributed the instability to the “basis trade,” a strategy where hedge funds borrow heavily to exploit small price differences between Treasury bonds and derivatives.

When bond prices unexpectedly fluctuated, these traders incurred major losses and faced margin calls, forcing them to liquidate assets, further depressing prices. While Trump’s tariff pause led to a rebound in risk assets like stocks and cryptocurrencies, the preceding volatility highlighted the fragility of leveraged positions in the bond market.

A growing number of economists and analysts contend that it’s merely a question of when—not if—the U.S. central bank will be compelled to intervene, as many view such action as unavoidable.