Displaying items by tag: fed

The debate over how far the Federal Reserve will cut interest rates is sharpening as a backlog of key U.S. economic data finally comes into focus. Delayed employment and inflation reports, followed by fresh jobs data early in the year, are expected to clarify whether the Fed is nearing the end of its easing cycle or will need to cut more aggressively. 

Bond traders are betting on two rate cuts next year, more than the Fed currently signals, fueling optimism that Treasuries could extend a rally already shaping up as their strongest since 2020. 

The labor market sits at the center of the outlook, with upcoming jobs data seen as the most important input for determining the path of rates. Yield curves reflect this uncertainty, as shorter-term yields have fallen while longer-term rates remain elevated, widening the spread between the two. 

Finsum: If the Fed pauses amid sticky inflation, Treasury returns may rely more on coupon income than price gains, keeping the market range-bound despite elevated expectations.

Institutional investors are increasingly prioritizing global macro strategies, with surveys showing more than 40% planning to raise allocations in the year ahead. The appeal stems from a market environment marked by geopolitical risk, policy divergence across regions, and the breakdown of traditional stock-bond diversification. 

Global macro strategies offer flexibility to invest across currencies, rates, commodities, and equities, allowing managers to exploit dislocations that long-only approaches often cannot. Historically, macro strategies have demonstrated resilience during periods of market stress and have the potential to benefit from higher interest rates through both trading opportunities and carry income. 

As correlations rise and uncertainty grows, institutions view macro as a stabilizing, diversifying allocation rather than a niche exposure. 

Finsum: Strong risk management and disciplined execution make global macro a leading choice for portfolios positioning for 2025 and beyond

The Federal Reserve is widely expected to lower its benchmark interest rate by 25 basis points next week and again in December, according to a Reuters poll of economists, reflecting a shift toward additional easing amid economic uncertainty. 

The move follows the Fed’s first rate cut since December, as policymakers prioritize stabilizing the labor market over curbing inflation that remains above target. Nearly all economists surveyed, 115 out of 117, anticipate the federal funds rate will drop to a range of 3.75%–4.00% on October 29, while 71% expect another quarter-point cut in December. 

However, economists remain sharply divided on where rates will stand by the end of next year, with forecasts ranging between 2.25% and 4.00%, reflecting uncertainty over the economy’s trajectory and the pending succession of Chair Jerome Powell. Despite the uncertainty, markets have already fully priced in two more cuts

Finsum: The Fed faces a delicate balancing act as it weighs persistent inflation against signs of labor market softness, with some officials emphasizing job stability while others warn of reigniting price pressures. 

In his first public appearance as a Federal Reserve governor, Stephen Miran argued that Trump’s economic policies are lowering inflation and opening the door for sharper rate cuts. Miran cast the lone dissenting vote at the Fed’s recent meeting, favoring a steeper cut than the quarter-point reduction approved by his colleagues. 

He downplayed concerns that tariffs are raising consumer prices, claiming instead that foreign countries are bearing the costs—an assertion disputed by many economists. Miran confirmed he was the outlier in Fed projections, pushing for rates as low as 2.75% to 3% by year-end and promising to lay out his case in an upcoming paper. 

His dual role as both a Fed governor and member of Trump’s Council of Economic Advisors has raised questions about the central bank’s independence. 

Finsum: While Fed Chair Jerome Powell emphasized that policy will ultimately be shaped by data-driven arguments, not politics, Fed independence is at risk.

The S&P 500 closed above 6,400 for the first time ever, driven by a broad stock market rally following fresh inflation data. The Dow Jones Industrial Average rose nearly 500 points, the S&P 500 gained 1.1%, and the Nasdaq Composite climbed 1.4%, with both indexes ending at record highs. 

Small-cap stocks surged as well, with the Russell 2000 jumping almost 3% on renewed optimism for a September Fed rate cut. The latest Consumer Price Index report showed core inflation rising 3.1% year over year in July, while headline inflation held steady at 2.7%, slightly below expectations. 

Markets now see a 94% probability of a rate cut, helping boost risk assets across the board. In corporate news, Intel shares rose over 5% after CEO Lip-Bu Tan met with President Trump, who praised Tan’s leadership despite having called for his resignation just a week earlier.

Finsum: Keep an eye out for multiple cuts this year, and surging equities despite a sluggish economy.