Pressure builds on the Fed
On the face of it, you might think that the Fed will be in an easier position tomorrow than it was at its last decision in May. There still remains a lot of pressure from the White House on the Fed to cut rates. However, baring catastrophe in today’s session, the Chair will address markets in a context where they are ‘rebuying’ rather ‘selling’ America. 10-year yields have continued to moderate from the date of the liberation day tariff pause and US equity indices are considerably higher than even pre-April 2nd levels. However, it seems that any belief the Fed is in for an easier ride this time around may be an oversight.
Scratch beneath the surface of the rebuy America trade and we see significant stresses within the market. Yes, financial markets are largely discounting the risk of a meaningful recession in the years ahead but there remains a material risk of stagflation. Those stagflationary risks have been added to with the rising tensions in the Middle East that we have written on recently. Shocks to the oil price are yet another key example of a simultaneous risk to growth and inflation that the Fed will be questioned on. That questioning will focus on the dichotomy of a risk to the price level and to liquidity conditions especially in the face of Trump’s tax bill.
Moving into tomorrow’s decision, markets are still looking for 50-basis points worth of easing left for 2025. The median forecast says that will be delivered with 25-basis point cuts in September and December. However, the inflationary risk of tariffs incurred in April and May as well as those months to follow have not yet been reflected meaningfully in inflation statistics to date. Therefore, there is the likelihood of an inflation shock in the months ahead that may distort that pricing. Services inflation and rents continue to fall emphasising the challenge the Fed finds itself in.
Discussion and Analysis by Charles Porter
Related Insights
Daily Brief – Forgiven
Charles Porter
Tue 10 Mar 2026
Forgiven Even with an equity correction underway at the start of yesterday’s session, it still appeared that the market was under-pricing the risk of a protracted conflict in the Middle East. FX and fixed income asset classes had reacted more severely with stronger defensive bids into currencies including the Dollar and Franc, but still the […]
Daily Brief – Fade America
Charles Porter
Thu 26 Feb 2026
Fade America There have been times during Trump’s second term that have had markets and financial commentators alike calling for an era of ‘sell-America’. Sell-America is the notion describing a scenario in which investor sentiment sours towards the US so much so that valuations across US assets decline. This is a unique scenario because many […]
Daily Brief – Sell first, question later
Charles Porter
Thu 5 Mar 2026
Sell first, question later The jury is still out on whether the initial “sell everything” reaction to a sudden increase in geopolitical risk has concluded. Certainly, some volatility remains which serves as an indication that trading conditions have not calmed whilst markets continue to question how this chapter of US military intervention ends. Emerging markets […]
