I don't blame Chairman of the Federal Reserve Jerome Powell for being cautious. After holding rates steady from July of 2023 until September 2024, the Fed cut rates aggressively until the end of December. They have since held rates steady as can be seen on the chart below.
Unfortunately for Chairman Powell, rate cuts sparked a rise in inflation that lasted (so far) through January. Since then, inflation has moderated, but it is far too early to detect a trend as can be seen on the next chart.
Bond professionals are beginning to price in a rate cut, possibly two, before the end of the year. Certainly, Chairman Powell is getting a lot of pressure to cut rates from the White House. Now that he is at the end of his term, he is probably haunted by the ghost of Arthur Burns. For those who do not recall the history, the competent but unfortunate Chairman Burns was blamed for allowing President Richard Nixon to influence Fed policy during the 70s period of stagflation. I do not know if his reputation has ever recovered.
There is some possibility that the Fed will cut rates this year. The next Consumer Price Index report is not due until July 16. So far, the inflation that many expected from tariffs has not materialized. I believe that it is too soon to tell and that rates will ultimately depend on America's fiscal condition.
For now, we are maintaining our overweight to short-term government and agency bills and notes.
*Effective Federal Funds Rate (I:EFFRND) Chart. YCHARTS, Jun 26, 2025, 1041 AM EDT. Accessed on 06.26.2025.
**US Consumer Price Index MoM (IUS1MCCPI) Chart. YCHARTS, Jun 26, 2025, 10:46 AM EDT. Accessed on 06.26.2025.