Fed's Daly Says 'Reasonable' to Expect two Rate Cuts Before end of 2025

Economic

Central Bank

Summary:

Daly said at the Rocky Mountain Economic Summit in Victor, Idaho. But the Fed also doesn't want to keep rates restrictive for too long because that would unnecessarily hurt the labor market.

San Francisco Federal Reserve President Mary Daly reiterated on Thursday it is "reasonable" to expect two interest rate cuts before the end of this year, particularly with the impact of President Donald Trump's tariffs looking more muted than originally expected.

Inflation is still above the U.S. central bank's 2% target and there's still "some work to do" to bring it down, Daly said at the Rocky Mountain Economic Summit in Victor, Idaho. But the Fed also doesn't want to keep rates restrictive for too long because that would unnecessarily hurt the labor market, she said.

"I don't think we need to slow precipitously to produce the last mile on inflation," Daly said. "I wouldn't want to see more weakness in the labor market ... I really wouldn't want to see that, which is why you can't wait forever" on cutting rates.

Companies are figuring out ways to avoid tariffs and are not passing on all of their increased costs to their customers, and despite a doubling of the effective average tariff rate under Trump the increased levies on imports are not so far spilling more broadly into overall inflation.

"We haven't seen any evidence that that's occurring," Daly said, though recent consumer price data does show the price of goods is rising. Offsetting that, however, is encouragingly lower inflation in non-housing-related services inflation, she said.

Asked if she would support reducing the current policy rate range of 4.25%-4.50% when the Fed meets in two weeks, Daly noted that she expects rate cuts to resume as inflation falls, with the policy rate at an ultimate settling point of 3% or somewhere higher than that level.

"Whether it happens in July or September or some other month is really not the most relevant piece," she said. More relevant, Daly added, is that rates will be reduced.

"We don't want to unnecessarily tighten the economy in a way that hurts the labor market or growth. So that's the direction of travel," she said.

Two of the Fed's 19 policymakers have said they believe a July rate cut could be appropriate; others have signaled they expect it to take longer to be able to judge the effect of the tariffs and other Trump policies on inflation and the labor market, and therefore to know if a rate cut would be appropriate.

Financial markets reflect very little expectation for a rate cut at the Fed's July 29-30 meeting, with bets focused on the September 16-17 meeting as a much more likely time for the policy easing to resume.

Trump has waged an escalating pressure campaign on Fed Chair Jerome Powell to cut rates immediately and raised the possibility of replacing him before his term as U.S. central bank chief expires next May. Powell has repeatedly said he intends to finish out his term as Fed chief.

Daly declined to comment specifically about Trump's comments, but noted that all Fed policymakers participate in interest rate decisions.

"We share equal responsibility when we take that vote" on rates, Daly said.

Source: Reuters

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Adam

Economic

Some Federal Reserve policymakers are not budging from their view that rates should remain where they are despite the intensifying pressure from President Trump and his allies to ease monetary policy immediately.

Federal Reserve governor Adriana Kugler and New York Fed president John Williams both made this argument in speeches delivered Thursday morning and Wednesday night, citing the risk of inflation pressure from tariffs.

“With the unemployment rate still at historically low levels, elevated short-run inflation expectations, and goods inflation rising due to the upward pressure from tariffs, I find it appropriate to hold our policy rate at the current level for some time,” Kugler said in her Thursday speech in Washington, D.C.

“I judge that inflation is likely to increase further as tariff effects build up during the rest of the year.”

On Wednesday night, Williams stressed that he thinks that tariffs are already pushing up inflation and that will increase in the coming months. He expects tariffs will push up inflation by a full percentage point in the second half of this year and into the first part of 2026.

“Maintaining this modestly restrictive stance of monetary policy is entirely appropriate to achieve our maximum employment and price stability goals," Williams said in his speech.

Opposing camps are now forming inside the central bank on the question of Trump's tariffs and how they should affect what the Fed does on rates.

Two other Fed governors, Christopher Waller and Michelle Bowman, have argued for cuts as early as the next meeting July 29-30, which is not an outcome investors expect.

Waller last week reiterated that any inflation from tariffs will be temporary, justifying a looser monetary policy approach.

“I think we're just too tight and we could consider cutting the policy rate in July,” said Waller, adding, “It’s not political.”

Waller’s arguments carry increasing weight since he is considered to be among the candidates to replace Jerome Powell as Fed chair next May, when Powell’s term is up.

“We're not seeing a lot of tariff inflation yet,” Waller added last week. “For that reason, I've been arguing that we could start lowering the policy rate from our current setting.”

These views align with those of Trump, who has repeatedly called on the Fed and Powell to ease monetary policy, citing what he views as a lack of inflation thus far from tariffs and the savings that could be made if the US were paying lower interest on its debt.

Powell has argued for more time to assess whether inflation does in fact move higher over the summer. Williams made a similar argument Wednesday, saying holding rates steady will allow more time to assess the data.

He said he anticipates inflation will come in between 3 and 3.5% percent this year and then fall back to about 2.5% next year before reaching 2% in 2027. The Fed's goal is to get inflation back down to 2%.

Kugler noted the still-restrictive policy stance is important to keep longer-run inflation expectations anchored.

She said she is not seeing any progress on headline and core inflation the past six months, noting that goods inflation has gone up and that reflects some pass through of increased tariffs.

Kugler stressed that businesses may not yet be passing the higher tariffs to their selling prices because they are waiting for greater clarity.

She also noted that tariff rates could increase further, as seen in newly proposed reciprocal tariffs for several countries and the new tariffs on copper introduced last week, putting further upward pressure on prices.

Source: finance.yahoo

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Adam

Bond

Economic

If long-end bond yields spiral out of control, the Fed could start injecting liquidity again: a step-by-step guide of how it works.

When a few weeks ago 30-year bond yields briefly flirted with the 5% level, the Fed’s Collins released an interview stating that ’’the Fed is absolutely ready to stabilize markets’’.

To stabilize the bond market, they would ’’inject liquidity’’ through operations like the LSAP - Large Scale Asset Purchase or QE.

Central Banks create bank reserves when they perform such operations.

Bank reserves are often referred to as ’’Liquidity’’.

When Central Banks engage in liquidity creation, they do that in the hope that it activates the so-called Portfolio Rebalancing Effect.

To understand this, let’s start from what QE does to the balance sheet of a commercial bank - take a look at the chart below.

Following the GFC, regulators forced banks to own more HQLA (high quality liquid assets) to meet depositor outflows.

Bank reserves and bonds qualify as ’’HQLA’’ as they are liquid enough to be converted in cash to meet potential outflows quickly.

But banks are not indifferent between owning bank reserves and bonds, and especially if the amount of reserves grows dramatically as a result of QE.

Bank reserves are a zero-duration and low-yielding instrument which can be suboptimal to own in big sizes especially if compared with bonds which offer higher returns and duration hedging properties.

And this is when the Portfolio Rebalancing Effect kicks in.

Once QE starts, Central Banks take away bonds and inject new reserves in the banking system.

Loaded with suboptimal reserves, banks will try to switch back the composition of their portfolios towards more bonds.

They will bid up safer bonds first, and bid up riskier bonds later when the hunt for returns intensifies.

This will kick in a virtuous cycle of low volatility and a hunt for riskier assets: the Portfolio Rebalancing Effect in action.

Summarizing:

Central Banks expand their balance sheet and purchase bonds

Commercial Banks are on the receiving end of QE, and hence their portfolio composition tilts towards more reserves, and less bonds;

But reserves are sub-optimal to own compared to regulatory-friendly bonds, and hence they look to rebalance their portfolios;

They start buying the very same bonds QE is buying, hence suppressing volatility further and compressing credit spreads;

Asset allocators and investors across the world are more and more encouraged to take additional risks in their portfolio, supporting the flow of credit and capital.

Does the Portfolio Rebalancing Effect make sense to you?

Source: investing

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Owen Li

Economic

KEY TAKEAWAYS

The 'Big, Beautiful Bill' increases some major tax deductions for the 2025 tax year, but also ends other credits.
The bill raises the standard deduction by $750 to $1,125 for taxpayers who don't itemize their 2025 taxes.
Taxpayers who do itemize can deduct four times more of what they paid in state and local taxes than in previous years.
The bill eliminates energy credits for clean vehicles and clean home installations.

Your tax bill will look different this year thanks to the 'Big, Beautiful Bill' President Trump signed the into law this month.

The law extends and expands the Tax Cuts and Jobs Act (TCJA) that Trump enacted in 2018 during his first term. Some tax credits and deductions from this act will increase during the 2025 tax year, but other clean energy credits will be eliminated.

Tax credits are the amount of money taxpayers can subtract directly from the taxes they owe. Tax deductions are how much taxpayers can subtract from their taxable income, to lower the overall amount of taxes they owe.

These are the most significant tax credit and deduction changes in the 'Big, Beautiful Bill' that will apply to next year's 2025 tax returns.

The Standard Deduction Will Increase

The 'Big, Beautiful Bill' permanently increases the standard deduction, a fixed amount that taxpayers who do not itemize their deductions can subtract from their taxable income.

Under the bill, the standard deduction for single taxpayers and married individuals filing separately increases by $750 for the 2025 tax year. It will also increase by $1,125 for heads of households and by $1,500 for married couples filing jointly.

Standard deductions will continue to rise annually to keep in line with inflation increases.

The Increased 2025 Standard Deduction Under The 'Big, Beautiful Bill'
Single Taxpayers and Married Filing Separately	Heads of Households	Married Filing Jointly
$15,750	$23,625	$31,500

SALT Deduction Expands

The final bill temporarily increases the state and local tax (SALT) deduction. This deduction allows taxpayers who itemize their taxes to subtract all or some of what they paid in taxes to their state and local governments from their federal taxable income.

The 'Big, Beautiful Bill' quadruples the original $10,000 cap that the TCJA put on SALT deductions to $40,000 for the 2025 tax year. That means taxpayers, specifically those with higher incomes or in high-tax states, can deduct more when they file their 2025 taxes next year.

The bill also increases the cap every year to keep pace with inflation and wage growth. From 2026 to 2029, the cap will increase 1% annually until 2030, when the provision expires.

Source: Yahoo Finance

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Adam

Forex

The most traded Forex pair hasn't disappointed traders in terms of trends and volatility throughout 2025.

Going from 1.02 to 1.18 highs in 7 months, there had been some decisive momentum to participate with as this strong buying took the Euro to highs unseen since 2021.The geopolitical mishandles from the Trump Administration earlier this year had led to European leaders putting back the Euro unification back on the table. After some major deals were announced from Germany and other Euro Nations, the Euro started its ascent. to up 15% on the year at one point.This theme got accompanied with general lack of confidence from the Trump Administration which led to some major US Dollar selling and financial flows rewiring.

But, it seems today that markets are taking profits on these trends, leading to some intermediate tops in the Pair currently – Let's take a look at EURUSD Technicals to spot if there is any elements to help us see if the flows have really shifted or not.

EURUSD Multi-Timeframe analysis going from the Daily to 1H Charts

EURUSD Daily

EUR/USD Daily Chart, July 17, 2025

The Israel-Iranwar consolidation in the pair had led to a major relief rebound towards the 1.1830 2025 Highs in a strong fashion – from 1.1450 to the highs in 7 consecutive bull candles (Tight bull channel).However, since July 1st, all currencies have found some of their strength against the US Dollar taken back and the Euro hasn't been an exception.

Almost all daily candles have been red since that day and prices are close to back to pre-end-of-war levels – Momentum just fell below the mid-line, indicating some seller strength which will have to decisively breach below. the 50-Day Moving average to regain more control.Higher timeframe levels to keep an eye on:

Resistance Levels:

Current Pivot Zone 1.16 to 1.1650

2020 Resistance around the 1.18 Zone (2025 Highs)

Sep 2021 Highs – Main Resistance 1.20 Zone

Support Levels:

1.15 Support Zone (Confluence with 50-Day MA)

1.12 to 1.13 Main Support Zone

1.10660 Last major pivot to the upside

EURUSD 4H

EUR/USD 4H Chart, July 17, 2025

Looking closer allows to observe the current ongoing descending downwards channel were prices have trended down with some regularity but the move is currently stalling as markets approach oversold levels.Prices are currently evolving between the 50 and 200 4H Moving Averages as buyers held the 1.16 Support Zone (smaller timeframe support) to bid the Pair during the past day Syria War headlines.Monitor closely any decisive break below the 200 MA that is currently holding prices – We are currently trading just below that indicator but we would require a stronger move to assume more bearishness.In the meantime, there is a somewhat high probability to retest the high of the range that revisits the 50 MA at the same time around 1.1678 but prices will first have to cross the 1.1620 to 1.1650 Pivot Zone.

EURUSD 1H

EUR/USD 1H Chart, July 17, 2025

he ongoing session has begun with a double bottom right at the bottom of the 1.16 Support Zone (1.1560).Anyways, buyers will still have to breach back into the downwards channel (which has been broken out overnight – coincides with the 1.16 psychological Level) to avoid a further bearish continuation.Take a look at reactions at the low of the channel, the 1H MA 50 and the 1.1650 Pivot Zone if prices do get there.

Source:marketpulse

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Adam

Economic

Some of the biggest names on Wall Street are getting louder about the importance of an independent Federal Reserve as the White House pressure on Jerome Powell intensifies.

JPMorgan Chase (JPM) CEO Jamie Dimon, Bank of America (BAC) CEO Brian Moynihan, Citigroup (C) CEO Jane Fraser, and Goldman Sachs (GS) CEO David Solomon all offered separate arguments this week about why it was so critical to financial markets for the central bank to operate autonomously.

"Fed independence is very important, and it's something we should fight to preserve,” Solomon told CNBC on Wednesday.

The stability of the US “is actually necessary and important to the whole world,” Moynihan added in a separate interview with CNBC on Wednesday, and he said, “I think a stable Fed, an independent Fed, is key to that.”

“In a year, we'll have a new Fed chair, because that's the right of the president," he added, referring to the fact that Powell's term expires next May. "But I think if … the market would really look at a change prematurely as being something very different."

Investors did, in fact, react negatively on Wednesday to multiple reports that Trump was close to firing Powell. Longer-term Treasury yields rose and the dollar dropped before Trump told reporters that he was "not planning" to fire Powell.

Trump left the door open to that possibility, however. "I don't rule out anything, but I think it's highly unlikely, unless he has to leave for fraud," he said.

Citigroup's Fraser was among the other big bank executives to make her views known publicly this week.

In a statement shared with Yahoo Finance and other media outlets, she said that “the independence of the Federal Reserve drives its credibility. It is critical to the effectiveness of our capital markets and U.S. competitiveness.”

But the CEO who first weighed in this week was JPMorgan's Dimon, someone with a lot of sway on Wall Street and in Washington. In April, Trump acknowledged listening to Dimon before pulling back on his "Liberation Day" tariffs, which triggered widespread market chaos.

Dimon told reporters Tuesday that the independence of the Federal Reserve is "absolutely critical" for Powell and whoever succeeds him as chairman of the central bank.

"Playing around with the Fed can often have adverse consequences," Dimon said after JPMorgan reported its first quarter earnings, adding that it can produce "the absolute opposite of what you may be hoping for."

Source: finance.yahoo

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Adam

Forex

Economic

The Japanese yen continues to have a busy week, with strong movement in both directions. In the North American session, USD/JPY is trading at 148.53, up 0.45% on the day. On Wednesday, USD/JPY strengthened to 149.18, its highest level since March.

US retail sales surprise with 0.6% gain

US retail sales have been in the doldrums of late, posting declines in April and May as consumers reacted with a thumbs-down to President Trump's tariffs, which took effect in April and made imported goods more expensive.

The markets had anticipated a marginal gain of just 0.1% m/m in June but retail sales came in at an impressive 0.6%, bouncing back from -0.9% in May. Most sub-categories recording stronger activity in June.

The US tariffs appear to have had a significant impact on retail sales, as consumers continue to time their purchases to minimize the effect of tariffs.

Consumers increased spending ahead of the tariffs and cut back once the tariffs went into effect. With a truce in place between the US and China which has slashed tariff rates, consumers opened their wallets and purchased more on big-ticket items such as motor vehicles, which jumped 1.2% in June.

With Trump threatening new rounds of tariffs against allies such as Canada and Japan on August 1 if no agreements are reached, it will be interesting to see if consumer spending reverses direction next month.

Japan's inflation rate expected to ease

This week, the US and UK posted higher inflation numbers for June, but Japan is not expected to follow suit. Headline inflation is projected to drop to 3.3% y/y from 3.7% in May and core CPI, which is closely watched by the Bank of Japan, is expected to drop to 3.3% from 3.5%. If inflation is higher than expected, it will raise expectations for a rate hike from the BoJ in the fourth quarter.

USDJPY Technical

There is resistance at 148.00 and 149.08

146.80 and 145.72 are providing suppport