Fed Expected to Hold Rates Fifth Time, Defying White House Push for Cuts

The Federal Reserve is poised to maintain its benchmark rate in the 4.25%–4.50% range at its two-day meeting starting Wednesday, marking the fifth straight hold amid signs of easing inflation and growing White House pressure for rate cuts.

Key points:

• Inflation cooled to 2.7% in June and core prices to 2.9%, near the Fed's 2% goal.


• Two Trump-appointed governors, Christopher Waller and Michelle Bowman, could dissent in favor of a cut.


• U.S. stock futures climbed (Dow +0.1%, S&P +0.26%, Nasdaq +0.44%) as bond investors add credit risk and duration.

U.S. stock futures firmed Wednesday after the European Union and United States struck a framework trade agreement imposing a 15% tariff on most EU imports. The S&P 500 notched its sixth straight record close July 28, and premarket futures rose: Dow +0.15%, S&P +0.28%, Nasdaq +0.45%. \n\nInvestors cheered the deal's $600 billion in existing private investments and $750 billion in strategic purchases, even as analysts warn these commitments largely mirror plans already in motion. \n\nA test looms: on July 31 an appeals court will hear VOS Selections vs. Trump, challenging presidential authority under the International Emergency Economic Powers Act, potentially nullifying the entire tariff framework.

Pressure is rising on the Federal Reserve's operational framework as Republican Senator Ted Cruz and White House-aligned groups push to strip the central bank of its interest-on-reserves program. While Fed Chair Jerome Powell shows no appetite for immediate change, success for Cruz's measure would force a return to a pre-crisis rate-control system and trigger large bond sales.

Prospective Powell successors such as Christopher Waller and Kevin Warsh are also debating the size of the Fed's $6.7 trillion balance sheet, with Warsh advocating even deeper cuts. Market participants warn that any shift away from the current regime could mean higher real-world rates and broader economic pain.

The U.S. dollar surged to multi-month highs this week, propelled by a weekend trade agreement with the European Union that formalises a 15% tariff on European goods and includes substantial U.S. energy and defence purchases. The DXY index jumped more than 1% on Monday, its largest one-day gain since May, putting it on track for its best week of the year.

Meanwhile, Wall Street stocks treaded record territory on earnings optimism, but a stronger dollar threatens overseas earnings and competitiveness. Investors now shift focus to the Federal Reserve's two-day policy meeting, key labor and trade data, and the ramp-up in mega-cap tech and industrial earnings.

S&P 500 concentration has reached levels unseen since the 2000 tech bubble, with its 10 largest constituents now accounting for 39% of the index's total market value. A recent Kobeissi Letter shows those mega-caps—led by Apple, Microsoft and Nvidia—have driven 54% of the S&P's 70% gain since January 2021. Passive investing and AI sector dominance have fueled this narrow rally, prompting warnings of broader market fragility as global funds pivot toward emerging markets.

• Golden cross signal: SPY's 50-day moving average crossed above its 200-day on June 30.


• Overbought alert: SPY's RSI sits at 76.34, suggesting potential consolidation.