Daily Newsletter 6/18/25
The Federal Reserve is set to announce its latest interest rate decision today at 2:00 p.m. EST, followed by a press conference with Chair Jerome Powell at 2:30 p.m.
The Fed is widely expected to hold its benchmark federal funds rate steady at 4.25% to 4.5%, maintaining the cautious approach it has taken throughout 2025.
The following outlines the rationale behind market expectations for no rate cut at today’s Federal Reserve meeting.
Based on the current economic indicators, there is little justification for the Federal Reserve to implement a rate cut at this time. While there is public debate and some calls for immediate easing, the data most relevant to the Fed’s decision-making process do not support such a move. The preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, remains elevated at 2.5% year-over-year. The unemployment rate is low and has been stable for an extended period, indicating ongoing labor market strength. These conditions point toward a continuation of the current neutral policy stance.
Although the recent implementation of tariffs could influence future economic data, the effects typically take time to materialize in hard indicators, suggesting that any potential rate cuts would be more likely later in the year. Regarding oil, historical episodes such as the aftermath of September 11 and the 2022 invasion of Ukraine demonstrate that oil price shocks often stabilize over time, making the risk of a prolonged stagflationary episode less certain.
From the Federal Reserve’s perspective, maintaining the current policy stance is the most prudent course of action for now. One variable that could have altered this outlook is a significant shift in inflation expectations among market participants, but these expectations have recently declined, further supporting a wait-and-see approach.
The risk of further escalation in the conflict between Israel and Iran remains a significant concern for global markets. While many analysts consider a blockage of the Strait of Hormuz unlikely, given that such an action would run counter to Iran’s own interests, we respectfully disagree. In our view, should the conflict intensify, any unexpected action—including disruption of this critical oil transit route—could become possible. Such a scenario would likely push energy prices higher, increasing production costs and fueling inflation worldwide. Central banks, already balancing the challenges of elevated inflation and slowing growth, may find their policy options constrained if energy shocks persist.
Overall, the situation remains highly fluid, and markets are expected to stay sensitive to developments that could impact energy supply or heighten geopolitical uncertainty as the Israel-Iran War unfolds.
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