No drama from FOMC
June 19, 2025
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–In assessing the importance and impact of yesterday’s FOMC, note that across the entire US interest rate spectrum, net changes at futures settlement were almost zero. SFRZ5 settled +2 at 9611 or 3.89%. That was the largest change, the outlier, JUST +2. The Fed’s SEP left the end-of-year FF projection at 3.9% (though 7 members/dots projected NO more cuts for this year, up from 4 in March). Aside from SFRZ5 ALL contracts were within 1 bp of previous settles, right out to the 30y bond. The SEP trimmed forward growth, raised unemployment, increased inflation and slowed the pace of rate cuts. From the press conference, the methodology appears to have been simply plugging in an increase in prices due to tariffs, and mechanically running it through ‘the model’ to spit out other data points.
–An example of yesterday’s FOMC trade: SFRZ5 9612.5^ sold at 42.5, 2k. Tuesday’s settle was 44.5, yesterday’s was 42.0.
–In reviewing the SEP, I would note by implication that the neutral rate seems to be around 1%. GDP for 2025 was revised lower to 1.4%, with Core PCE inflation 3.1% (up from 2.8%) and FF at 3.9%. So real FF rate 0.8%. For 2026, GDP estimated 1.6%, Core PCE 2.4% and FF 3.6% so real FF 1.2%. Over the ‘Longer run’ GDP estimated 1.8% with Unemp 4.2, PCE Prices 2.0 and FF 3.0. That’s the base model.
–Here we go again: SNB cuts rate to zero and hints at more to stop inflows into the franc. A BBG bullet point says ‘Profitability of banks not within SNB mandate’. UBS at 24.84 (CHF) down 0.38 this morning. (RTRS) “The loss potential for UBS, Switzerland’s sole remaining big bank, which acquired rival Credit Suisse in 2023, remained substantial under various stress scenarios, the SNB said.” Sweden’s Riksbank cut to 2% yesterday (expected) and signaled more to come. The high in 2024 was 4%.
