The Fed just wrapped up its press conference, and we heard what everyone was expecting. No change to interest rates, and the message is still wait and see. Marta, we have seen inflation cooling in recent months and recent reports.

So what will it take for the Fed to cut rates?

Well, remember the Fed has two mandates, inflation and labor. And Powell has said throughout this period that the Fed is gonna prioritize whichever side of that mandate it's furthest from its target. So should we see the labor market collapse or we see inflation fears not realized, we'll get that cut.

Investors were also closely watching the dot plot. You know that that's the committee's forecast for the number of rate cuts for the remainder of the year. Before today's meeting, they were penciled in, two rate cuts. After today's meeting, still two cuts. What does that tell you about the Fed's thing?

It's such an interesting dichotomy because we characterize the Fed's positioning today as wait and see. Mhmm. And yet if the Fed is expecting two cuts over the course of twenty twenty five, we don't have that many meetings left. So that would suggest material or at least visible deterioration in the labor market or clarity around the impact of tariffs on inflation in the near future.

Another big topic is the US debt load, and there's growing debate about whether rising debt is pushing up yields on the longer end of the curve. What's your take then?

So the Fed controls the short end of the curve. Mhmm. When we think about what's pushing yields around at the longer end, that's, of course, the market's expectations for where the Fed's path is gonna meander from here. And it also incorporates a term premium, which is a premium for the uncertainty, and that can rise or fall depending on how investors perceive that. Now the Fed cannot directly impact the term premium, but what it can do is reestablish and continue to reinforce its credibility. In other words, tell the market, tell investors that it can and will deliver on those dual mandates. And that is one reason we really emphasize the importance of the independence of the Federal Reserve.

You and your team are releasing your q three outlook next week, and I know the term premium is a topic that we dive deeper into. I'm looking forward to that. But in the meantime, I wanna ask you a question about oil because there's a lot of talk about what's happening in the Middle East and how that might disrupt the oil market and impact prices.

Right. So when we're thinking about oil supply shocks, a lot of times we tend to look through that. Right? Mhmm.

Energy is part of the headline inflation number, and the Fed is focused on core inflation or inflation absent food, absent energy. And yet while we've dismissed energy price movements broadly, when Russia invaded Ukraine, we did see an oil price shock and that ultimately did feed through to core inflation. So I guess the takeaway here is that geopolitical events, the impacts on the energy market shouldn't be dismissed altogether. One other point that also muddies the waters is this idea that research shows that oil price shocks tend to occur before recessions.

So, of course, any movement there is gonna have people on some sort of recession watch.

So, really, the sum total of this is it's just adding to the uncertainty at the moment.

So how should individual investors think about positioning along the yield curve in this uncertain environment?

There is diversification appeal at the short and intermediate term parts of the curve. So in essence, kind of the front end and intermediate part of the curve, the rates are appealing there. And what's also interesting is research suggests that when the fed funds rate is above four percent, which it is today, the risk adjusted return impact of that front end of the curve is a real positive for portfolios or at least has been historically.

Marta, as always, great perspective on these timely topics. We're gonna be back next week with Marta's q three outlook, and we're gonna get her analysis, on that outlook. Looking forward to that. But until then, have a great rest of the week.