Market Musings 6/18/2025
Quick thoughts on the markets and major portfolio news. Not on Ursa yet? Download Ursa from the App Store!
Cautious Fed continues to disappoint markets
Markets slide off intraday highs after a disappointing Fed meeting.
At high level, it was as expected. No #RateCuts, but the Fed is still forecasting two by the end of the year.
Why were markets disappointed?
First, Powell made it clear than the recent #Inflation progress was not enough. He actually almost seemed to snap at one reporter stressing forward-looking data is more important than historicals for forecasts.
Basically, markets have latched onto historical inflation data like CPI, PPI and PCE as enough signal that #Inflation has regressed enough. However, the Fed appears to be more focused on forward-looking signals like US policy decisions, economic forecasts and consumer and business sentiment.
Second, Powell specifically called out that #Tariffs WILL lead to some #Inflation. While recent data hasn’t show much yet, Powell noted #Inflation from #Tariffs isn’t usually instantaneous as businesses work through policy changes and existing inventory. However, he stressed #Tariffs do cause #Inflation as someone has to pay for them.
He also noted that a one-time step up would be manageable, but #Tariffs could also lead to more persistent #Inflation as well.
Finally, Powell continues to reiterate the Fed has time to wait and see. In the Fed’s view the economy remains healthy with low #LaborMarkets unemployment and currently stabilizing #Inflation. They feel they still have time to continue to wait out the uncertainty before moving on #RateCuts.
Basically markets didn’t get the #RateCuts signal they were hoping for. The next Fed meeting is at the end of July with already small odds for #RateCuts which will likely shrink further. Pre-meeting, odds for a September cut was about two-thirds. We’d expect that to shrink as well.
Overall, we didn’t come away that surprised with Powell’s cautious messaging. As he repeatedly noted, there’s a lot of economic uncertainty still, but the economy has been resilient. The Fed believes they can afford to wait－for now, that’s what they’re going to do.
In the meantime, we’ll continue to monitor new macro data as well.
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The statements, opinions and analyses presented here are provided as general information. This article is the opinion of the author. Anything within this article should NOT be considered an investment recommendation or advice. See Ursa’s full disclosures here.
Original Photo by Pixabay.