With the US job market holding up stoically the Fed have been on hold all year, much to the chagrin of President Trump, although the futures market is still pricing in two cuts by Christmas. A divide has emerged over how many rate cuts officials expect in the second half of 2025; the Minutes from the Fed’s June policy meeting, released on Wednesday, showed that this division is due to differences in how officials perceive tariffs will affect inflation. Uncertainty is being created because it’s too soon to know if the inflationary effects of tariffs will result in a one-time price bump or be more persistent.
We see this mixed opinion around the path by the Fed is likely to cause some volatility around rate-sensitive names. Two cuts before Christmas are the best outcome the Doves can hope for in the months ahead, with the Fed having already shown its hand: “If in doubt, do nought.” However, it’s the long end that has been our concern at MM. For now, the markets are comfortable with the US 30s trading around 5%, a push above 5.25% could prove a trigger for a pullback in stocks. This is an important indicator for stocks and one we are keeping a close handle on.
- The US 30s can test above 5% in the coming months, and the big question is whether such a move is sustainable.
