In this KE Report daily editorial, we welcome back Marc Chandler, Managing Partner at Bannockburn Global Forex, for a timely breakdown of the latest Fed meeting, ongoing U.S. economic data deterioration, and key currency market developments.
Key points include:
- Federal Reserve Recap: The Fed left rates unchanged, but the dot plot revealed a sharply divided committee, ranging from no cuts to three cuts in 2025. Marc notes the underlying message: elevated uncertainty remains, despite Powell’s claim of improved clarity since April.
- Economic Data Trending Lower: Marc outlines a string of disappointing economic reports – retail sales, industrial output, and housing starts – that point to a gradual weakening of the U.S. economy. He notes that data surprise models have cratered, and the Fed’s GDP forecast for 2025 was revised down to 1.4%.
- Rate Cut Timing: July vs. September? Despite dovish remarks from Governor Waller, Marc views a July cut as unlikely. Most Fed officials are signaling a wait-and-see approach, with September now the key window, especially if labor market softness persists.
- Is It Stagflation? While the term is gaining traction, Marc pushes back, arguing inflation remains moderate and real growth, while slowing, is still above recessionary levels. But he acknowledges the “stagflation psychology” is creeping into markets and sentiment.
- Currency Market Focus: The U.S. dollar remains under pressure, despite a short-term rebound above 99 on the DXY. Marc notes positioning is crowded short and highlights the structural shift in asset allocations away from the U.S. as a longer-term drag.
- Potential Shocks Ahead: Marc flags two looming risks:
• Tariffs – July 9 could bring new U.S. trade actions across pharma, chips, and more.
• Middle East Conflict – Oil prices have responded, but broader markets remain cautious unless the conflict escalates.