| Interest Rate Market Snapshot | ||||||
| Federal Funds | SOFR | 2Y Treasury | 5Y Treasury | 7Y Treasury | 10Y Treasury | |
| 4.33% | 4.29% | 3.93% | 3.97% | 4.17% | 4.40% | |
Are rate cuts on the table - or off it
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Rates are treading water this week
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2-Year rates are higher today, but roughly unchanged from last week
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10-Year rates are higher today too, but slightly lower from last week
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Fed Funds and SOFR remain stuck at 4.30-4.35% until Powell moves again
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Fixed swap rates are still saving borrowers 0.50%-1.00%
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Sure, there’s been a slow drip of trade announcements and tariff reversals, along with the now-routine Trump attacks on Powell’s character—but markets seem to be taking it all in stride
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The consensus right now is: there’s nothing new to price in
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Everyone’s waiting for next week’s Fed meeting — expecting: no cut, tariff inflation is still a risk, economy is doing ok, and the job market is doing ok (I disagree, but that’s for next week’s email)
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What I think matters more is the two-month stretch that follows
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Between now and the next FOMC meeting in September, Powell will have to absorb two more job reports, two more inflation reports, and 49 days of growing pressure from the White House
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That’s the window where things will get interesting
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And on that note, yes, the Powell vs. Trump subplot is alive and well – they toured the Federal Reserve renovations this afternoon
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Betting markets still see only a 20% chance Powell gets fired this year, and Kevin Warsh is still the front-runner to replace him if it happens
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It’s not a high-probability event — but it’s a tail risk markets are watching closely
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Source: bloomberg
Source: bloomberg
When will markets price in a Trump Fed?
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That’s the rhetorical question I posed earlier this month, and it’s become more relevant since: If Powell’s replacement is being chosen for their willingness to cut, when does the rate market start front-running that?
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There are hints that its already happening because so far, 2025 rate expectations haven’t budged since May
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But what’s quietly changing is 2026 — traders are leaning harder into the idea that if the Fed doesn’t cut this year, they will next year, in size
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The more Trump calls for 300 basis points of easing, the more traders sketch out a scenario where Powell either bends, or gets replaced by someone who will
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That’s why the September meeting matters — but not because the Fed will move. It’s about the data we get between now and then
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If inflation breaks higher, the 4–5 cuts currently priced in are too optimistic, and you’ll see fixed rates jump as the market unwinds those rate cut bets
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But if inflation holds steady — or drifts slightly lower — the market will double down on the easing narrative, and swap rates will drift lower ahead of Powell’s replacement
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My view: tariff inflation is real - but manageable
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I lean toward that second outcome. Tariff inflation is nuanced. The pass-through is uneven, and I’d put it at 60% odds that the next two CPI prints come in mixed — not scary.
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That gives Powell a reason to wait. But more importantly, it gives markets the confidence to price more cuts into 2026, regardless of what the Fed says next week.
Source: bloomberg
What does this mean for borrowers?
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This is why I’ve been talking about 3-year fixed rate swaps for a while now:
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On the way up, the best time to hedge is early — before hikes get priced in, and to use long term hedging strategies (10-year swaps)
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On the way down, it’s the opposite — you want to target shorter hedging strategies (2 & 3-year swaps) and the best time to lock those in is after cuts are priced in
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That’s exactly what’s happening now. If you can fix SOFR 75+ bps below where you are paying to float, you’re not just locking in a lower rate — you’re front-loading cuts the Fed hasn’t delivered yet
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That’s also why layering in overtime remains today’s best practice:
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As cuts get priced in, you add to your hedge
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If rates rise? You’ve locked in value
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If rates fall further? You have dry powder to capitalize
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Source: bloomberg
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