| Interest Rate Market Snapshot | ||||||
| Federal Funds | SOFR | 2Y Treasury | 5Y Treasury | 7Y Treasury | 10Y Treasury | |
| 4.33% | 4.29% | 3.75% | 3.83% | 4.03% | 4.27% | |
Fixed Rates Are Moving — The Fed Isn’t
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Decent rally in rates this week, but we’re taking a breather today after PCE inflation moves further away from the Fed’s 2% target
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The 2-Year Treasury yield dropped ~20bps, the 10-Year closer to 10bps, and swap rates followed, with 10–20bps rallies across most tenors this week
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If you’re watching the 3-Year swap, we’ve now fully retraced 50% of the post–Liberation Day backup — a technically important level
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Why the move? A string of economic releases — none of them disastrous, but together enough to reopen the door to another rate cut in September
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Simply put, when data points to a slowing economy, the market anticipates that the Fed will cut rates, pricing in those expectations ahead of any official action — and as a result, fixed rates decline
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SOURCE: BLOOMBERG
|
SOFR Today: ~4.35% |
||
|
Vanilla Fixed Rate Swaps |
Rate |
Savings |
|
1-Year |
4.03% |
0.32% |
|
2-Year |
3.67% |
0.68% |
|
3-Year |
3.58% |
0.77% |
|
5-Year |
3.61% |
0.74% |
|
10-Year |
3.86% |
0.49% |
|
Vanilla Fixed Rate Swaps (w/ short cap) |
Rate |
Savings |
|
1-Year |
3.97% |
0.38% |
|
2-Year |
3.59% |
0.76% |
|
3-Year |
3.43% |
0.92% |
|
5-Year |
3.32% |
1.03% |
|
10-Year |
3.29% |
1.06% |
SOURCE: BLOOMBERG
Data’s Not a Disaster — But It’s Not Good Either
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Continuing jobless claims rose to 1.97 million, the highest since 2021, and crucially, during the June payroll survey week
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That gives this print direct implications for the jobs report due next week
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GDP revisions were broadly lower, especially in consumption, suggesting demand may be softening more than headline numbers suggest
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Personal income and spending both fell, reversing last month’s upside surprise
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Spending posted its second monthly decline this year — the first time in four years that’s happened within a six-month span
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Meanwhile, consumer confidence, new home sales, and other forward indicators all trended soft
This morning:
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Core PCE came in at 0.1% MoM / 2.7% YoY, and previous months were revised slightly higher.
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The annual number bounced off the low end of its 12-month range (2.5%–3.0%), a subtle shift that didn’t go unnoticed
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Supercore inflation (ex-housing services) remained calm, but not outright falling
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CPI fixing swaps now point to accelerating inflation expectations in July, August, and September, and 1-year zero-coupon inflation swaps are still hanging above 3%, despite a recent dip in near-term expectations
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So, yes, inflation is moving in the right direction — but the Fed is holding its breath for tariff inflation pass through, so until then we “wait and see”
SOURCE: BLOOMBERG
SOURCE: BLOOMBERG
So… September?
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Fed funds futures now give a 70–75% chance of a cut in September, with some additional risk priced for October or December
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July is off the table and the next two CPI releases will likely settle the question
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Between now and the July meeting we will get just 1 more set of inflation reports
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September, we get 3. Likely enough for the Fed and Powell to completely understand that immediate impact of tariffs. So far, none of it has shown up
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We’re not in a stagflation setup — yet. But weaker growth + sticky inflation is a combination the Fed is going to have to manage, not solve
SOURCE: BLOOMBERG
The Fed’s Still Watching. The Market’s Done Waiting.
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Powell’s testimony on Capitol Hill didn’t say much new — but he did say this:
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“If the labor market were to weaken meaningfully in a concerning way, it would be possible to cut rates sooner than expected.”
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And the front end took him at his word. Short-end yields dropped more than the long end, and Fed funds futures shifted decisively toward September
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Additional color from Fed officials:
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Mary Daly said the fall might be a good time for a cut, and that tariffs would have only a temporary effect on inflation
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Austan Goolsbee echoed that view, saying he was optimistic that the inflation impulse from tariffs would be “modest” — but added that it’s important to wait for confirmation
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That’s where we are: the Fed wants to wait. The market is getting tired of it
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