Daily Comment (July 30, 2025)

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with an assessment of the current FOMC meeting, focusing on the potential timing of interest rate cuts. Additionally, we will explore a range of other impactful international and domestic developments influencing financial markets, including the latest in trade policy and the ongoing situation with China.

Fed Meeting: Today, Federal Reserve officials are anticipated to conclude their two-day meeting by holding interest rates at the current target range of 4.25% to 4.50%. This decision is poised to move financial markets, with investors closely scrutinizing the Fed’s statements for any indication of when rate cuts might occur later this year. Although market expectations lean towards a September rate cut, Fed officials might choose to be more noncommittal in their guidance, allowing them to keep their policy options open.

  • The market will closely monitor any dissents during this meeting. In the weeks leading up to it, Fed officials have expressed differing views on whether the central bank should cut rates this month. Two Fed governors — Christopher Waller and Michelle Bowman — are seen as likely to dissent if rate cuts are not implemented.
  • The monetary policy debate arises amid concerns over tariffs’ economic impact. While most agree that tariffs will fuel higher inflation, officials disagree on whether the effect will be temporary or more structural.
  • So far, tariffs have had a relatively modest impact on inflation. In June, overall CPI edged up from 2.4% to 2.7%, while core inflation saw a smaller increase, rising from 2.8% to 2.9%.
  • We expect that any sign of dovishness from the Fed would likely boost equities, though the bond market reaction could be mixed, particularly if rates are left unchanged. Potential dovish signals might focus specifically on labor market inertia, where firms have shown reluctance both to hire or to lay off workers.

China Truce: Following two-day trade talks in Stockholm, the US and China concluded their meeting with no plans to extend the August 12 deadline for a new trade deal or reintroduce previous, more onerous tariffs. This meeting follows earlier discussions held in Geneva in May and London in June, as the world’s two largest economies strive to prevent escalating trade tensions.

  • While trade talks have made progress, any final deal still requires President Trump’s approval. There is growing speculation that failure to extend the tariff truce could trigger a return to triple-digit tariffs on Chinese goods.
  • Any easing of US-China trade tensions would likely boost US equities, with technology stocks positioned to benefit disproportionately given their significant revenue exposure and supply chain dependence on the world’s second-largest economy.

Yen in Trouble?: The Japanese currency is under significant pressure amid political and monetary policy uncertainty. The recently negotiated US trade deal has raised concerns that the government may increase fiscal spending and delay Bank of Japan tightening to support the economy. While this could provide a tailwind for Japanese equities, it may further strain the already-challenged bond market.

Tariff Stimulus Checks: Senator Josh Hawley (R-MO) has proposed legislation that would provide $600 rebates to American households to help offset rising costs from new tariffs. While the bill faces significant political hurdles following recent tax-cut stimulus measures, President Trump has indicated he might support the idea, particularly if tariff revenues continue to surpass expectations. Additional stimulus could provide further support to equity markets while reducing recession risks.

South Korea-US Trade Talks: Both parties are working diligently to reach an agreement before the August 1 deadline. While the Japan trade deal is largely viewed as a framework agreement, reports indicate several notable exceptions may be included, particularly provisions requiring South Korea to allow its currency to appreciate against the dollar while increasing imports of US beef and rice. While such a deal would likely boost Korean equity prices, it could potentially slow the country’s economic growth.

Eurozone Resilience: The eurozone maintained modest growth despite escalating trade tensions with the US, as GDP expanded 0.1% quarter-on-quarter in Q2, slightly exceeding expectations of flat growth. However, this aggregate performance masked divergences among member states, as economic contractions in Germany and Italy highlighted emerging vulnerabilities. While we maintain a constructive outlook for regional growth, we are closely monitoring these signs of weakness.

Climate Deregulation: The Trump administration is now pushing to roll back Obama-era regulations to limit carbon emissions. The EPA is expected to rescind its endangerment finding that classified carbon dioxide and other greenhouse gases as public health threats. This regulatory reversal would support the administration’s broader deregulation agenda, aimed at streamlining investment and accelerating development in key sectors.

Beijing Meets: China’s Communist Party will convene its next plenary session in October to deliberate on the 2026-2031 Five-Year Plan. Although the report didn’t specify an exact date, the meeting is expected to draw close scrutiny from global investors seeking clarity on China’s economic strategy amid escalating trade tensions.

Pacific Tsunami: A major earthquake off Russia’s far east coast has triggered tsunami waves, which are expected to impact Japan, Hawaii, and the West Coast of the United States. Evacuations are underway in affected regions as residents seek higher ground. While initial signs don’t point to a catastrophic outcome, the risk remains elevated.

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