Fixed Income Update
The bond market experienced jitters on Wednesday after reports emerged that President Trump was considering firing Fed Chair Jerome Powell before his term ends next May. The president had reportedly asked some GOP lawmakers about such a move and even drafted a letter to terminate Powell. In response, 2-year Treasury yields fell while longer-term yields spiked, reflecting expectations that a less independent Fed could cut rates in the short term, at the cost of higher long-term inflation. Market anxiety eased after Trump told reporters he had no plans to fire Powell, though he did not rule out the possibility entirely.
It’s important to remember that the Fed chair is only one vote among twelve on the FOMC. Regardless of how this unfolds, it is difficult to envision the 300 basis points of rate cuts that the president has suggested. If markets believe rates are being cut too aggressively, long-term borrowing costs – such as mortgages and auto loans – could actually rise due to higher long-run inflation expectations. While such an outcome would be self-defeating, it cannot be ruled out. This week’s headlines may have been a trial balloon to gauge market reaction, but we do not expect the rumblings around the Fed to cease anytime soon. If recent weeks are any indication, frontrunners for Fed chair will continue their “Apprentice”-style public auditions for the role.
Along those lines, Kevin Warsh, a former Fed governor and rumored candidate for Fed chair, said Thursday he sees early signs of a “structural decline in prices” driven by Trump’s policies and artificial intelligence. Calling this a “transformational moment in US economic history,” Warsh argued the Fed is stuck with outdated models and risks missing a potential productivity boom. Speaking on CNBC, he said, “If I were the president, what I would be worried about is a central bank that doesn’t see any of that – a central bank stuck with models from 1978 and governance from a prior period. I think we’re probably in the early innings of a structural decline in prices.” Warsh added that the Fed has lost credibility due to its hesitancy to cut rates.
As the Fed’s pre-meeting blackout period begins tonight ahead of the July 30th policy meeting, Fed Governor Christopher Waller said Thursday evening that he supports cutting rates this month, in line with Trump’s preference for lower borrowing costs. Waller also suggested additional cuts could follow, arguing that while tariffs may temporarily boost prices, they will not result in persistent inflation. He noted the economy is still growing, but its momentum has slowed significantly.
Meanwhile, inflation data released this week showed CPI rose 0.3% in June and 2.7% year-on-year, while core CPI increased 0.2% in June and 2.9% year-on-year. Producer prices showed no change in June. Market reactions were relatively muted, with investors focused on developments surrounding the Fed.
As of July 18, 2025
|
Index |
Current |
Last Week |
Wk Chg |
Last Year |
Yr Chg |
|
Tax-exempt MMF |
2.17% |
1.95% |
.22% |
2.77% |
-.60% |
|
Taxable MMF |
4.28% |
4.28% |
.00% |
5.33% |
-1.05% |
|
|
|
|
|
|
|
|
2-Year Treasury |
3.88% |
3.89% |
-.01% |
4.47% |
-.60% |
|
5-Year Treasury |
3.96% |
3.97% |
-.01% |
4.12% |
-.16% |
|
10-Year Treasury |
4.43% |
4.41% |
.02% |
4.20% |
.23% |
|
30-Year Treasury |
5.00% |
4.95% |
.05% |
4.42% |
.57% |
|
5-Year Exp. Inflation |
2.53% |
2.46% |
.07% |
2.20% |
.33% |
|
|
|
|
|
|
|
|
2-Year Corporate* |
4.28% |
4.28% |
.00% |
4.87% |
-.59% |
|
5-Year Corporate* |
4.55% |
4.55% |
.00% |
4.72% |
-.17% |
|
10-Year Corporate* |
5.19% |
5.18% |
.01% |
5.08% |
.11% |
|
30-Year Corporate* |
5.85% |
5.83% |
.02% |
5.41% |
.44% |
|
|
|
|
|
|
|
|
2-Year Municipal** |
2.57% |
2.45% |
.12% |
2.90% |
-.33% |
|
5-Year Municipal** |
2.72% |
2.64% |
.08% |
2.86% |
-.14% |
|
10-Year Municipal** |
3.53% |
3.33% |
.20% |
2.96% |
.57% |
|
30-Year Municipal** |
5.06% |
4.88% |
.18% |
3.97% |
1.09% |
|
|
|
|
|
|
|
|
10-Year German Govt Bond |
2.70% |
2.72% |
-.03% |
2.43% |
.27% |
|
10-Year U.K. Govt Bond |
4.67% |
4.62% |
.05% |
4.06% |
.61% |
|
10-Year Japanese Govt Bond |
1.53% |
1.51% |
.02% |
1.03% |
.50% |
|
10-Year Spanish Govt Bond |
3.31% |
3.33% |
-.02% |
3.21% |
.10% |
|
10-Year Italian Govt Bond |
3.55% |
3.57% |
-.02% |
3.74% |
-.19% |
|
|
|
|
|
|
|
|
Fed Funds |
4.50% |
4.50% |
.00% |
5.50% |
-1.00% |
|
Prime Rate |
7.50% |
7.50% |
.00% |
8.50% |
-1.00% |
|
Dollar*** |
$98.49 |
$97.85 |
$0.64 |
$104.17 |
-$5.68 |
|
CRB |
$304.23 |
$303.52 |
$0.71 |
$285.59 |
$18.64 |
|
Gold |
$3,358.10 |
$3,364.00 |
-$5.90 |
$2,456.40 |
$901.70 |
|
Crude Oil |
$67.43 |
$68.45 |
-$1.02 |
$82.82 |
-$15.39 |
|
Unleaded Gasoline**** |
$2.16 |
$2.19 |
-$0.03 |
$2.29 |
-$0.14 |
Note: Municipal yields are as of the previous business day.
* Composite A
** General Obligation AA+
*** Int'l value of the U.S. dollar (Avg. exchange rate between the dollar and 6 major world currencies).
**** Futures price per gallon
Stock Market Update
The S&P 500 and Nasdaq Composite set fresh record closing highs again this week (on Thursday) as the path of least resistance remained to the upside for the stock market. This week, investors pondered the latest tariff negotiation news, inflation data, and information from corporate America as 2nd quarter earnings season got underway.
There was no shortage of tariff rhetoric and gamesmanship headlines again this week. Over the weekend, President Trump threatened the European Union (EU) and Mexico with 30% tariff rates starting August 1st (and separate from sectoral tariffs). The EU warned that tariffs at this level may make trade negotiations “almost impossible” and suggested possible retaliatory measures. Trump also announced plans to send letters to more than 150 countries to set tariff terms. During the week, he indicated that tariffs on pharmaceuticals and semiconductor chips could be announced by the end of the month, noting that they could start out low to give the industries time to adapt, but that they could go much higher over time. On the positive side, the president approved Nvidia’s (NVDA) resumption of H20 semiconductor chip exports to China. Some speculated that he may be softening his stance on China in an effort to secure a meeting with Xi Jinping--and a trade deal. Also, there were reports that a trade deal with India could be close. Some of this week’s news fueled a bit of intra-day volatility, but the market seems to have become somewhat acclimated to the ebbs and flows in tariff headlines.
Inflation data was a focal point during the week. On Tuesday, the June core Consumer Price Index (CPI) came in cooler, up 0.2% month/month versus the expected rise of 0.3%. The annualized core rate of 2.9% was also below the expected 3.0%, but slightly higher than last month’s 2.8% reading. Analysts and economists noted some moderate tariff pass-through in the core goods. On Wednesday the June core Producer Price Index (PPI) echoed CPI results, showing evidence of some upward pressure from tariffs, particularly in trade-sensitive areas, despite a softer than expected headline. June core PPI was unchanged month/month, cooler than the expected 0.2% rise and May’s upwardly revised 0.4%. The annualized core also ticked down to 2.6%, below the expected 2.7% and May’s 3.2%. Following the data, market expectations about rate cuts by the Federal Reserve were dialed back a bit (now around 42 basis points through year-end).
Banks kicked off earnings season this week, with most posting better than expected 2nd quarter earnings. Investment banking, wealth management, and trading results were tailwinds, with loan growth also a bright spot for some. Net interest income (NII) was somewhat underwhelming for some. Comments about the macro landscape were mostly upbeat, but earnings outlook commentary was somewhat mixed. Wall Street will be getting more color about 2nd quarter earnings next week, as reporting season heats up—112 of the S&P 500 companies will release results (including 5 Dow Jones Industrial Average companies.
As of July 17, 2025
|
Index |
Current Week |
Month of Jul. |
YTD |
|
Dow Jones Industrial Avg. |
0.25% |
0.93% |
5.52% |
|
S&P 500 |
0.61% |
1.54% |
7.84% |
|
Nasdaq |
1.46% |
2.55% |
8.55% |
|
MSCI EAFE |
-0.71% |
-0.93% |
18.80% |
|
Russell Mid Cap |
0.48% |
1.83% |
6.75% |
|
Russell 2000 |
0.85% |
3.65% |
1.80% |
