Publications

A rate cut in September remains a possibility if the labor market proves to be "on the edge" and weakens sharply, but that seems unlikely at this point. For now, "we have a long way to go to really understand exactly how [the tariff-related inflationary effect] will be."

We expect the Fed to leave rates unchanged at this week’s meeting and do not anticipate growing dovish support. The uncertainty over the end level of tariffs and its inflation impact, along with a still solid labor market, give the Fed room to wait.

Mid- and long-term Treasury yields have pulled back from last month’s highs amid soft inflation prints and dovish signals from Fed officials like Bowman and Waller, who have voiced support for a July rate cut.

While directionally consistent with our expectations, the SEP adjustments (higher inflation, weaker growth, and a slightly higher unemployment rate) were not sufficient to alter the median fed funds rate projection for end-2025, which remains at 3.9% (two cuts).

A notable development in recent weeks has been the rise in the 30-year Treasury yield, likely driven by growing concerns over U.S. fiscal sustainability and reduced global appetite for U.S. Treasuries as bond investors want to be rewarded for higher risks.

Recent softness in sentiment is not enough to shift policy as solid demand and stable jobs data support a continued pause. Attention now turns to assess whether this cautious pause could extend deeper into the second half of the year.

While Trump recently suggested he would not try to remove Powell from his position following last week’s intensified criticism, such threats to institutions underpinning the dollar’s global dominance pose a serious risk to the future of the global financial system.

While short-term inflation expectations have increased, the Fed doesn't seem troubled for now because “most measures of longer-term expectations remain consistent with [the Fed’s] 2% inflation goal.”