What Wall Street is saying about this year’s Fed rate cuts
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Diverging Reports Breakdown
Trump, Markets Want Lower Interest Rates—But The Fed Isn’t Moving
U.S. economy added 147,000 jobs in June, topping forecasts. The unemployment rate ticked down to 4.1%, according to the latest Bureau of Labor Statistics data. Those numbers make it hard for the Fed to justify an imminent rate cut, as inflation remains above the 2% target. But markets are still leaning toward at least two rate cuts this year, according to CME Group Fed Watch and betting exchange Kalshi.”The Fed is much less likely to cut rates this month than many were talking about earlier this week,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management. “We expect the inflationary impact of tariffs to have peaked by the fourth quarter,” said Nancy Vanden Houten, lead U.S., economist at Oxford Economics. “While there were some elements of softness beneath the better-than-expected headlines, the June employment report was strong enough to allow the Federal Reserve to keep policy on hold,” she said.
In June, the U.S. economy added 147,000 jobs, topping forecasts, while the unemployment rate ticked down to 4.1%, according to the latest Bureau of Labor Statistics data released Friday. Those numbers make it hard for the Fed to justify an imminent rate cut, as inflation remains above the 2% target.
That’s a problem for Trump, who’s been repeatedly calling out Fed Chair Jerome Powell for delivering large rate cuts.
But the Fed appears unfazed—at least for now.
Read also: Don’t Bury The US Labor Market Just Yet: June Jobs Report Beats Every Forecast
Economists Just Don’t See Near-Term Fed Rate Cuts
Bank of America economist Aditya Bhave said the data was “solid,” adding that, “average job growth is above breakeven, and the u-rate is down. This should let the Fed stay in wait-and-see mode.”
He did flag a few concerns—like weaker private-sector job growth at just 74,000 and flat aggregate private income—but not enough to change the outlook.
Bhave reiterated his base case that “the Fed won’t cut this year,” especially if the economy holds up and inflation trends higher, possibly to 3% in the coming months.
That puts markets in a bind.
Over the past few weeks, traders had priced in what some economists called a “Goldilocks” path—a scenario where inflation stays tame enough to allow cuts even with decent job growth. But Bhave pushed back on that idea, saying, “We always thought this scenario was the least likely.”
If he’s right, either stocks or short-term bond yields, or both, are probably mispriced.
“Given the strong jobs numbers along with the extension of tax cuts and potentially higher tariff levels…the Fed is much less likely to cut rates this month than many were talking about earlier this week,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management.
Zaccarelli believes a cut could still happen—just not right away. “The Fed is likely to wait until later in this quarter or even until the fourth quarter.”
Other economists echoed that timeline. Bill Adams, chief economist at Comerica Bank, said, “The Fed has a maximum employment mandate, not a job growth or GDP growth mandate. If the unemployment rate is holding steady…the job market won’t give the Fed a reason to cut.”
Adams sees a rate cut as possible in October or December, “but more likely to be driven by cooler-than-expected inflation than by an increase in unemployment.”
Nancy Vanden Houten, lead U.S. economist at Oxford Economics, said the Fed still has reason to wait. “While there were some elements of softness beneath the better-than-expected headlines, the June employment report was strong enough to allow the Federal Reserve to keep policy on hold,” she said.
She doesn’t expect action until the inflationary impact of tariffs fades. “We expect the inflationary impact of tariffs to have peaked by the fourth quarter, allowing the Fed to start cutting rates in December.”
Investors Still Betting On Cuts
Despite the Fed’s cautious tone, markets are still leaning toward at least two rate cuts this year. Fed futures currently imply 55 basis points of cuts by December 2025, according to CME Group Fed Watch.
CFTC-regulated betting exchange Kalshi shows there’s a 37% chance of two 25-basis-point cuts by December. As of Friday, Kalshi traders were pricing the following probabilities for Fed cuts by December 2025:
0 cuts (0 bps): 15%
15% 1 cut (25 bps): 22%
22% 2 cuts (50 bps): 36%
36% 3 cuts (75 bps): 17%
17% 4 cuts (100 bps): 5%
That means the market sees a 58% chance of at least two cuts by year-end, and a 22% probability of three or more, despite the strength of the labor market and the potential second-half inflationary risks from tariffs.
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Wall Street rises as Fed minutes put rate cuts in focus
Wall Street indexes closed higher on Wednesday after Federal Reserve meeting minutes fuelled hopes that inflation pressures would not derail interest rate cuts. The tech-heavy Nasdaq led gains as Nvidia briefly reached a US$4 trillion valuation. The minutes for the mid-June meeting showed that most Fed officials said they expect rate cuts will be appropriate later this year, with price shocks from Trump’s import taxes expected to be “temporary or modest” However, there was little support for a rate cut at the end of July meeting, according to the minutes. The S&P 500 gained 36.36 points, or 0.58%, to end at 6,261.88 points, while the Nasdaq Composite gained 189.34 points,or 0.93%, to 20,607.23. On Tuesday, Trump had ramped up his trade offensive with the announcement of a 50% tariff on copper.
NEW YORK : Wall Street indexes closed higher on Wednesday after Federal Reserve meeting minutes fuelled hopes that inflation pressures from President Donald Trump’s tariffs would not derail interest rate cuts this year and the tech-heavy Nasdaq led gains as Nvidia briefly reached a US$4 trillion valuation.
The minutes for the mid-June meeting showed that most Fed officials said they expect rate cuts will be appropriate later this year, with price shocks from Trump’s import taxes expected to be “temporary or modest.” However, there was little support for a rate cut at the end of July meeting.
Nvidia finished higher after it became the world’s first company to hit a US$4 trillion market value on Wednesday morning, solidifying its position as one of Wall Street’s most favoured stocks to tap in the ongoing surge in demand for artificial intelligence technologies.
“Fed officials suggested that they believe inflation will be higher down the road. At the same time, many or most officials suggested that they expect lower interest rates at some point this year. Those two things don’t match,” said Chris Brigati, chief investment officer at SWBC, an investment company in San Antonio, Texas. “Perhaps they’re starting to put a little bit more weight into what’s going on with the labor market.”
Besides Nvidia, other market boosts came from megacap companies including Microsoft Corp and Amazon.com.
“There’s definitely a megacaps bias. … To some extent it’s a flight to safety but not what you would traditionally think of as a safety trade,” said Kevin Gordon, senior investment strategist at Charles Schwab. “From a trade standpoint it’s not like you’re getting much clarity.”
According to preliminary data, the S&P 500 gained 36.36 points, or 0.58%, to end at 6,261.88 points, while the Nasdaq Composite gained 189.34 points, or 0.93%, to 20,607.23. The Dow Jones Industrial Average rose 214.23 points, or 0.48%, to 44,450.53.
While Wall Street indexes had fallen on trade jitters on Monday, they have steadied since then, with analysts noting that investors have become used to Trump’s pattern of saber-rattling on tariffs. And with the deadline for the latest tariffs pushed to Aug 1, many are betting that negotiations will defuse the trade war.
Trump on Wednesday issued letters to seven countries, calling for tariffs of 30% on Algeria, Iraq, Libya and Sri Lanka, 25% on Brunei and Moldova, and 20% on the Philippines. The European Union has said it could reach an outline trade agreement with the US in the coming days.
On Tuesday, Trump had ramped up his trade offensive with the announcement of a 50% tariff on copper and a vow to slap long-threatened levies on semiconductors and pharmaceuticals. On Monday, Trump hit 14 trading partners with a fresh wave of tariff warnings, including Japan and South Korea.
“The market is becoming a little desensitised to the bad news of tariffs. … You had three months of still constructive growth and things have not been that bad so the market’s saying maybe we can get through these tariffs,” said SWBC’s Brigati.
After last week’s record closes for the S&P 500 and the Nasdaq – buoyed by a surprisingly robust jobs report -investors are turning their attention to Thursday’s initial jobless claims for the next pulse check on the labor market.
Among individual stocks, AES Corp rallied after Bloomberg reported that the power provider was exploring options, including a sale.
Boeing shares advanced as Susquehanna raised its price target after the planemaker reported on Tuesday that its airplane deliveries in June increased 27% on a yearly basis.
UnitedHealth Group shares slipped after the Wall Street Journal reported that the US department of justice was investigating how the health insurer deployed doctors and nurses to gather diagnoses that increased its Medicare payments.
Goldman Sachs raises Fed rate cut forecast to three in 2025
Goldman Sachs raises its projection for U.S. interest rates in 2025 to three-quarter-point cuts. Wall Street brokerage expects rate cuts of 25 basis points each in September, October and December. It had earlier projected a single 25 bp rate cut this year. Citigroup and Wells Fargo also expect the Fed to cut rates by 75 basis points in 2025, while UBS Global Research forecasts 100 basis points of reduction. The Fed’s benchmark interest rate currently stands at 4.25%-4.50%.
Item 1 of 2 An eagle tops the U.S. Federal Reserve building’s facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst/File Photo
July 1 (Reuters) – Goldman Sachs on Monday raised its projection for U.S. interest rates in 2025 to three-quarter-point cuts because of muted tariff effects and labor market weakness.
The Wall Street brokerage expects rate cuts of 25 basis points each in September, October and December. It had earlier projected a single 25 bp rate cut this year.
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“We had previously thought that the peak summer tariff effects on monthly inflation and the recent large increases in some measures of household inflation expectations would make it overly awkward and controversial to cut sooner,” analysts at Goldman wrote in a note.
“Early evidence suggests that the tariff effects look a bit smaller than we expected,” the analysts said, adding that disinflationary forces have been stronger than expected.
Citigroup and Wells Fargo also expect the Fed to cut rates by 75 basis points in 2025, while UBS Global Research forecasts 100 basis points of reduction. All four brokerages say the cuts will begin in September.
U.S. President Donald Trump’s administration slapped “reciprocal tariffs” on April 2 on key trading partners, but later paused the steep hikes.
U.S. consumer spending unexpectedly fell in May as the boost from the pre-emptive buying of goods like motor vehicles ahead of the tariffs faded, while monthly inflation increased only moderately.
Goldman Sachs expects two more 25 bp rate cuts in 2026, pointing to a “terminal rate” of 3.00% to 3.25%, compared with its previous forecast of 3.50%-3.75%.
The Fed’s benchmark interest rate currently stands at 4.25%-4.50%.
The U.S. jobs report for June, due on Thursday, could reveal signs of a weakening labor market , potentially strengthening the case for earlier rate cuts.
Reporting by Akriti Shah in Bengaluru; Editing by Mrigank Dhaniwala and Ronojoy Mazumdar
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Wall Street ends mixed after the Fed says it’s still waiting to see the effects of Trump’s tariffs
The S&P 500 fell 1.85 points to 5,980.87, the Dow Jones Industrial Average dipped 44.14 to 42,171.66, and the Nasdaq composite added 25.18 to 19,546.27. The 10-year Treasury yield edged down to 4.38% from 4.39% late Tuesday. The two-year yield, which more closely tracks expectations for what the Fed will do with its overnight interest rate, held at 3.94%. On Wall Street, Nucor rose 3.3% after the steelmaker said it expects to report growth in profit for all three of its operating groups in the second quarter. The moves followed a mixed set of reports on the U.S. economy released earlier in the day. One said fewer workers applied for unemployment benefits last week, which could be an indication of fewer layoffs.
So far, inflation has remained relatively tame, and it’s near the Fed’s target of 2%. But economists have been warning it may take months to feel the effects of tariffs. And inflation has been feeling upward pressure recently from a spurt in oil prices because of Israel’s fighting with Iran.
Fed Chair Jerome Powell stressed on Wednesday that all the uncertainty surrounding tariffs means the median forecast for two cuts to interest rates this year could end up being far from reality. “Right now it’s just a forecast in a very foggy time,” he said
Fed officials are waiting to see how big Trump’s tariffs will ultimately be, what they will affect and whether they will drive a one-time increase to inflation or something more dangerous. There is also still deep uncertainty about how much tariffs will grind down on the economy’s growth.
“Because the economy is still solid, we can take the time to actually see what’s going to happen,” Powell said.
“We’ll make smarter and better decisions if we just wait a couple months or however long it takes to get a sense of really what is going to be the passthrough of inflation and what are going to be the effects on spending and hiring and all those things.”
Adding to the uncertainty Wednesday were continued swings for oil prices. After topping $74 during the morning, the price for a barrel of benchmark U.S. oil dropped below $72 before settling at $75.14, up 0.4% from the day before. Brent crude, the international standard, rose 0.3% to $76.70.
Oil prices have been yo-yoing for days because of rising and ebbing fears that the conflict between Israel and Iran could disrupt the global flow of crude. Not only is Iran a major producer of oil, it also sits on the narrow Strait of Hormuz, through which much of the world’s crude passes.
Trump said on Wednesday that Iran has reached out to him and that it’s not “too late” for Iran to give up its nuclear program, though he also declined to say whether the U.S. military would strike the country.
“I may do it. I may not do it,” he said. “I mean, nobody knows what I’m going to do.”
On Wall Street, Nucor rose 3.3% after the steelmaker said it expects to report growth in profit for all three of its operating groups in the second quarter. It said it benefited from higher selling prices at its sheet and plate mills, among other things.
All told, the S&P 500 fell 1.85 points to 5,980.87. The Dow Jones Industrial Average dipped 44.14 to 42,171.66, and the Nasdaq composite added 25.18 to 19,546.27.
In the bond market, Treasury yields held relatively steady following a few wavers up and down.
The yield on the 10-year Treasury edged down to 4.38% from 4.39% late Tuesday. The two-year Treasury yield, which more closely tracks expectations for what the Fed will do with its overnight interest rate, held at 3.94%.
The moves followed a mixed set of reports on the U.S. economy released earlier in the day. One said fewer workers applied for unemployment benefits last week, which could be an indication of fewer layoffs. But a second report said that homebuilders broke ground on fewer homes last month than economists expected. That could be a sign that higher mortgage rates are chilling the industry.
In stock markets abroad, indexes were mixed across Europe and Asia.
Tokyo’s Nikkei 225 rose 0.9%, and Hong Kong’s Hang Seng fell 1.1% for two of the bigger moves.
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AP Writer Jiang Junzhe contributed.
Credit: AP Credit: AP
Fed to hold rates steady again as officials wait for more clarity on economy
US Federal Reserve officials are widely expected to leave interest rates unchanged for a fourth straight meeting on Wednesday. Officials may continue to pencil in two rate cuts this year – as many forecasters expect – but some economists say the so-called dot plot could show just one. The key document to watch will be the Summary of Economic Projections. That will contain the first update to Fed officials’ estimates for growth, inflation, unemployment and interest rates since March – before Trump announced widespread tariffs. Some 26 per cent of economists in an April Bloomberg survey had forecast a recession in the next 12 months. That dropped to 10 per cent in this month’s survey. The Fed chief could also field questions about his meeting with Trump in May, when the president implored the central bank to reduce rates by a full percentage point. The next rate cut will not come until at least September, with another one potentially following in December.
Policymakers have warned US President Donald Trump’s tariffs could boost inflation and unemployment, but so far, steady hiring and cooling inflation have allowed Fed officials to keep rates unchanged this year.
“The wait-and-see approach has served them well up until this point,” said Brett Ryan, senior US economist at Deutsche Bank. “Why deviate from it now when there’s no pressing reason to do so and with still upside risk to the inflation outlook?”
With so much uncertainty around the outlook, investors and economists will pay close attention to policymakers’ updated economic and rate projections. Officials may continue to pencil in two rate cuts this year – as many forecasters expect – but some economists say the so-called dot plot could show just one.
The Fed’s rate decision will be released at 2 pm on Wednesday in Washington. Chair Jerome Powell will hold a post-meeting press conference 30 minutes later.
Statement
Officials are expected to hold their benchmark interest rate in a range of 4.25 to 4.5 per cent and make few changes to the statement they released following their May 6 to 7 meeting. Policymakers may tweak a line referencing the uncertain economic outlook given trade tensions – particularly with China – have subsided since the May gathering.
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Instead of saying uncertainty has “increased further”, officials may simply say it “remains elevated”, Ryan and his colleagues wrote in a note to clients.
Updated projections
The key document to watch will be the Summary of Economic Projections. That will contain the first update to Fed officials’ estimates for growth, inflation, unemployment and interest rates since March – before Trump announced widespread tariffs.
Those levies, which were larger than many economists and Fed officials had expected, initially weighed significantly on the US growth outlook. But now that many of those tariffs are paused and being negotiated, economists have pared back their most dire predictions.
Some 26 per cent of economists in an April Bloomberg survey had forecast a recession in the next 12 months. That dropped to 10 per cent in this month’s survey.
Even so, forecasters expect policymakers to once again mark down their estimates for growth this year and boost their 2025 inflation projections.
Officials’ median estimate of the longer-run fed funds rate, a proxy for the so-called neutral rate that neither weighs on nor boosts economic activity, may continue to edge higher. Another increase would further bolster the case for slightly fewer rate cuts in the future.
Press conference
The surprise cooling of inflation recently – the Fed’s preferred measure was at 2.1 per cent in the year to April, just above the central bank’s 2 per cent target – opens the door to questions for Powell over why the Fed is not yet lowering rates.
While welcome news, Powell is likely to point to the risk that prices could still pick up, especially if higher tariffs take effect later this summer as scheduled.
Investors anticipate the next rate cut will not come until at least September, with another one potentially following in December. Powell will likely try to avoid saying anything too definitive about this year’s rate path.
The Fed chief could also field questions about his meeting with Trump in May. Trump has repeatedly called on the Fed and Powell to lower rates. Earlier this month, the president implored the central bank to reduce rates by a full percentage point. He’s also noted lower borrowing costs would help ease the US debt burden.
Market participants will be on the lookout for anything Powell says on the Fed’s ability to pay interest on reserves held at the central bank, an authority granted by Congress in 2006 and implemented in 2008. Senator Ted Cruz of Texas has proposed eliminating that power. Known as IORB, the tool is crucial to the Fed’s ability to control short-term interest rates when it operates with a sizeable balance sheet. BLOOMBERG
Source: https://finance.yahoo.com/video/wall-street-saying-years-fed-203702015.html