Easing Cycle: Market Outlook & Analysis
- Market indicators suggest a shift in expectations regarding Federal Reserve monetary policy.
- Federal funds futures are pricing in a 79% chance of no change next month, a drop from near certainty in recent weeks.Currently, a September rate cut is estimated...
- The policy-sensitive 2-year Treasury yield fell for a seventh consecutive session on Thursday, June 26, settling at 3.70%,according to Treasury.gov.
With growing concerns in the labor market, the probability of a September Fed rate cut has surged to 90%. Discover how recent economic indicators are shifting expectations for monetary policy, with the 2-year Treasury yield hitting a nearly two-month low. President Trump’s continued pressure on the Fed,alongside softening labor market data,is further influencing market sentiment. Explore the implications of potential policy adjustments and the Fed’s stance on maintaining steady rates amidst economic uncertainties and tariffs. Oxford Economics lead economist, Nancy Vanden Houten, points to the possibility of a rate cut. News Directory 3 provides a detailed analysis of these critical developments, offering you a comprehensive outlook. Discover what’s next for the federal funds rate!
Fed Rate Cut Odds Increase Amid Labor Market Concerns
Updated June 28, 2025
Market indicators suggest a shift in expectations regarding Federal Reserve monetary policy. While the central bank is still anticipated to hold steady at the next Federal Open Market Committee meeting in July, confidence in that outcome has waned. The estimated probability of a September rate cut has increased.
Federal funds futures are pricing in a 79% chance of no change next month, a drop from near certainty in recent weeks.Currently, a September rate cut is estimated at 90%.
The policy-sensitive 2-year Treasury yield fell for a seventh consecutive session on Thursday, June 26, settling at 3.70%,according to Treasury.gov. This marks the lowest level in nearly two months. The widening gap between the 2-year yield and the median federal funds rate suggests growing sentiment in the Treasury market favoring a rate cut.
federal Reserve Chairman Jerome Powell recently affirmed the central bank’s intention to maintain steady rates, citing uncertainty surrounding inflation risks from tariffs. “Policy changes continue to evolve, and their effects on the economy remain uncertain,” Powell said in prepared remarks to Congress.
“For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance,” Powell said.
Labor market data is also influencing market sentiment. While initial jobless claims have decreased for two weeks after reaching their highest level since October, continuing claims are rising, hitting a 3 1/2-year high.
Nancy Vanden Houten, lead economist at Oxford Economics, said the data suggests a softening in labor market conditions, notably on the hiring side. “For now, we don’t think the labor market is weak enough to prompt the Fed to cut rates before December, but the risk is increasing that once the Fed starts to lower rates, it will have some catching up to do,” vanden Houten said.
President Trump continues to pressure the Fed to cut rates. Reports indicate he is considering naming Powell’s successor sooner than expected to influence monetary policy. While Powell has 11 months remaining in his term, markets may soon need to consider comments from a potential “shadow Fed chair” if Trump nominates someone early.
“This is a terrible idea, sure to annoy and confuse financial markets if there are two Fed Chairs,” said Greg Valliere, chief U.S. policy strategist at AGF Investments. Kathryn judge, a professor at Columbia Law School, added, “It all depends on just how loyal this person is expected to be to Trump…we don’t know what the ramifications would be or what they’d be willing to do, because this is unprecedented.”
What’s next
Markets will closely watch upcoming economic data and any further pronouncements from the Federal Reserve and the White House for further clues about the future of monetary policy and the potential for a federal reserve rate cut.