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If you’d like to attend his special event, simply RSVP here with one click.

What Happened to All Those Rate Cuts?

By Larry Benedict, editor, Trading With Larry Benedict

At the start of the year, markets were forecasting as many as six interest rate cuts in 2025.

But as we pass the halfway mark, there haven’t been any rate cuts at all. They keep getting pushed further out.

What’s more, minutes released earlier this week from the Federal Reserve’s June meeting show that the board is incredibly divided.

A couple of board members were pushing for a cut as early as this month. Some think we won’t see any rate cuts this year at all.

The rest are somewhere in the middle…

Many Fed officials expect rates to be lower by year’s end. But they are about evenly split between one or two 0.25% cuts.

There’s such a diversity of views, it’s hard to guess how things will shake out. So let’s pick apart what’s driving all this confusion…

It’s About the Economy

At the heart of this confusion is uncertainty about the economy. There are competing views about how things will play out in the second half of the year.

On the one hand, the job markets remain sturdy. Last week’s data saw job openings beat expectations by around 374,000 – the highest reading in six months.

Nonfarm payrolls also comfortably beat market forecasts. The economy added 147,000 new jobs in June against expectations of 110,000.

They’re not blow-out numbers, to be sure… But they take any prospect of a cut later this month off the table – especially with the unemployment rate also ticking down. It dropped to 4.1% in June, 0.2% below market forecasts.

These figures highlight how quickly things have changed…

Just a few months ago, markets crashed after the Liberation Day tariff announcements. But after a dramatic recovery, the S&P 500 and Nasdaq are now regularly punching out all-time highs.

The surge in stocks has also helped pick consumer sentiment up off the floor.

June’s University of Michigan’s reading came in at 60.7 points – up from just 52.2 points in May. (The next reading is coming next week.) The results bucked a rapid downtrend that began back in December last year.

But against these positive signals, we see a growing number of unknowns. That’s causing the Fed to remain cautious…

Don’t Forget Inflation

The inflation debate will dominate the markets in the second half of the year.

A number of tariff letters were sent out this week, but there have been no trade deals done yet with major partners. So the debate now hinges on the impact of tariffs on inflation.

That said, I remain certain about one thing… Putting an additional cost on any good can’t make it any cheaper. Unless the company absorbs that cost, eventually it’s the consumer who pays.

And that has to put upward pressure on inflation…

That’s before you consider the “Big, Beautiful Bill,” which should add demand to the economy due to tax cuts and the increase in government spending. That will put further pressure on prices.

So despite some softer inflation prints, I’m not convinced that the Fed has broken the back of inflation. Going by the split in the Federal Reserve board, it seems that neither are they.

We might get another round of soft inflation prints next week, but remember that inflation data takes several months to show up in official figures.

It may start ratcheting higher in the second half of 2025 as the impact of tariffs and tax cuts begin to bite.

There’s no Fed meeting scheduled for August, so the earliest rate cut we might see wouldn’t be until September.

It’s a fool’s game trying to predict something so far out. The economy could easily slide, and a number of factors could rock the economy in the meantime.

There’s every chance that we won’t get that anticipated rate cut in September.

So this is a story we’ll have to keep a close eye on as the next chapter is written…

Regards,

Larry Benedict
Editor, Trading With Larry Benedict