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The Federal Reserve held interest rates steady yesterday, adopting a notably hawkish tone as it pointed to the resilience of the US labour market and the risk of an uptick in inflationary pressures as reasons to maintain its current stance.
Pressure on the Fed may have eased somewhat as tariff-driven inflation fears subsided and trade deals progress ahead of the 1st August deadline.
Nevertheless, yesterday’s GDP release confirmed a marked slowdown in growth in H1 2025 compared to the same period a year ago, despite some signs of resilience, with inflation likely to edge up as tariffs take full effect.
Against this backdrop, our view remains that the Fed is likely to deliver one rate cut before year-end, though a second remains possible should growth weaken more than expected or inflation ease materially.
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