Displaying items by tag: fed

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. 

The July jobs report showed nonfarm payrolls rising by just 73,000, with major downward revisions to previous months, signaling that the U.S. economy may be slowing more sharply than expected. This has fueled recession concerns, especially as three-month average job gains dropped to just 35,000 and consumer spending, the key driver of GDP, remains tepid. 

Economists point to Trump-era tariffs and weakening labor market data as contributing factors, with some suggesting we may be on the brink of a recession, though GDP still rose 3% in Q2 due to import timing. 

Market reactions were swift: the Fed is now widely expected to cut rates in September, while stocks wavered amid political backlash and uncertain economic signals. Despite the White House expressing confidence, housing and manufacturing data continue to falter, and experts warn of potential consumer pullback. 

Finsum: While some remain optimistic about a soft landing, the outlook is increasingly clouded by high inflation, policy risk, and weakening employment trends.

Higher income returns supported strong bond market performance in 2024, with lower-quality credit outperforming amid favorable economic conditions. The 2025 outlook for fixed income remains positive, as real interest rates are expected to stay above inflation, offering attractive yields and portfolio diversification benefits. 

While monetary easing is likely to continue, it will proceed at a slower pace, and policy uncertainties—such as trade, immigration, and fiscal decisions—could introduce market volatility. 

Given these dynamics, a tactical approach to rates and credit strategies is recommended, with a preference for sectors that have lagged in spread tightening. Municipal bonds remain compelling for high earners, offering tax-equivalent yields above most taxable sectors. 

Finsum: Disciplined risk management and active security selection can help investors navigate an evolving fixed-income landscape.