The Pressure for Rate Cuts is Increasing…

Despite war raging in the Middle East and Europe, domestic protests across the country, and volatile tariff policies, American markets continue to move higher. The S & P 500 and the Russell 1000 Value indices are now positive on the year with Treasuries continuing to trade in a tight range.

Clearly, the markets are in a “risk on” mode as they have largely ignored the intensifying war between Iran and Israel. While it appears to be unlikely, the chance of an expansion of the current conflict cannot be totally ignored.

The Federal Open Market Committee (FOMC), the group that determines the Fed’s overnight lending rate, will begin its fourth meeting of the year this week. The market, along with most investors, believes the committee will leave rates unchanged. Currently, the Street is still pricing in one, if not two, quarter point cuts before the end of the year. With most recent economic data being relatively benign, the chorus is getting louder for the Fed to cut rates with recent inflation reports coming at, or below, expectations.

Meanwhile, employment numbers have largely held steady. Consumer sentiment has declined appreciably year to date largely due to the changing tariff environment although it showed a modest increase in the latest reading. Adding to the pressure to cut rate are the persistent and vocal demands from the Administration for interest rates to come down. However, the evolving tariff and trade landscape has made Chairman Powell and other FOMC members more hawkish, which could prolong the amount of time before more cuts occur.

It is expected that President Trump will not reappoint Jerome Powell for another term as Federal Chair. Currently, projections suggest that Treasury Secretary Bessent is likely to be nominated instead. As Powell’s term nears its end, there are concerns that Chair Powell may become a lame duck with little influence and authority in shaping policy decisions.