Interest Rate
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Fed funds target range maintained at 4.25%–4.50%.
Internal Split
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Bowman and Waller favored a 25 bps cut, while the majority supported keeping rates unchanged.
Inflation
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Inflation remains above the 2% target, with tariffs having a notable impact on certain goods.
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Core PCE stood at 2.7% in June, slightly above target.
Growth & Economy
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Slowdown in H1 2025 due to weaker investment and consumption.
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GDP rebounded in Q2 after a decline in Q1, supported by net exports and reduced imports.
Labor Market
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Unemployment at 4.1% in June, historically low.
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Wage growth at 3.7% YoY through June, lower than the previous year.
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Signs of moderation in labor demand despite low unemployment.
Inflation Risks & Outlook
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Inflationary pressures may persist if tariff effects continue.
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Inflation expected to gradually decline toward 2% by 2027.
Financial Markets
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Equities rose.
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Credit spreads narrowed.
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Dollar weakened slightly.
Technology & AI
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Optimism drove valuations of major tech firms above historical averages.
Banking Liquidity & Balance Sheet
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Reserves remain ample but may shrink with TGA rebuild and ongoing balance sheet reduction.
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SRF set at a 4.5% floor, ON RRP at 4.25%.
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Monthly reductions: $5B Treasuries and $35B MBS/agency securities.
Global Conditions
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General global slowdown.
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Canada: activity contracted.
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China: moderate growth.
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Foreign central banks mixed between holding steady and limited easing.
Housing & Real Estate
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Signs of weakening demand, rising supply, and falling prices in some regions.
Banking Risks
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Some banks remain sensitive to rising long-term yields, leading to potential unrealized losses.
Interest Rate Expectations
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Desk survey suggests two 25 bps cuts in H2 2025.
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Some market pricing points to only one cut.
Treasury Yields
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Only minor overall changes, reflecting macro stability.
Inflation Compensation
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Short-term expectations rose significantly due to tariffs.
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Long-term increases were very limited.
Equities
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Large-cap firms rose strongly.
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Small-caps remain below historical averages.
Housing
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Demand weakening, supply widening.
Lending Standards
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Remain relatively tight for households.
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Large corporates still accessing market funding.
Credit Quality
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Delinquencies rising in credit cards and FHA-backed mortgages compared to pre-pandemic levels.
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Most other mortgage categories remain low in delinquencies.
Financial Fragility
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Asset valuations elevated above natural levels.
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Private corporate debt growing rapidly while coverage ratios decline.
Stablecoins
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Expected to grow after recent legislation, with major benefits for payment systems.
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Still requires close monitoring of risks and monetary policy implications.
SRF Usage
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Reached about $11B by quarter-end, reaffirming its role in funding market stability.
