Rate cut speculations have been top of mind for many investors, and the Federal Reserve’s recent speech at Jackson Hole has added fuel to the fire, with comments that seemingly open the door for rate cuts in September, despite sticky inflation and a continued economic strength.
Are rate cuts coming in September? What should we keep in mind as the Fed’s policy meeting draws closer. And how is each manager approaching the situation within the Multi-Market Portfolio Series? Find a summary of reactions from three managers below:
AAMA:
Fed. Chair Powell indicated that the “door was open” for a policy shift in September, and both the bond and stock markets have reacted positively… So why do we still feel a rate cut is not guaranteed in September?
As we highlighted in our recent market Q&A, there is very little evidence, backed by data, to support a rate cut. Inflation has trended down from historical highs, but volatility remains. The most recent Super Core PCE report returned a four-month high reading of 2.8% annualized growth. The June CPI Services ex Energy release (similar to the Fed’s favorite Core PCE reading), returned a six-month high reading of 4.4% annualized growth.
Sticky inflation layered on top of a stable labor market and positive GDP growth (+3% last quarter) demonstrates that a rate cut could be inconsistent with the Fed’s primary mandates of pursuing maintaining price stability and maximum employment.
The key thing to keep in perspective is how the long markets react to the Fed’s policy decision. After last September’s 50 bps rate cut, the 10-year went straight up and ended a hundred basis points higher from the day of the cut. Mortgages increased as well. The response showed a lack in confidence in the fed’s inflation fighting efforts. Today’s 10-year rate is 4.25%, down 8 basis points on the day and still 62 basis points higher than last September.
There are a number of impactful data releases between now and the Fed’s policy meeting in September — CPI, PPI, GDP update, and JOLTS numbers. If the Fed cuts rates in September in the face of sticky inflation data and strong economic growth, we may see a repeat of last year’s move higher in long term rates.
In either case, AAMA remains focused on fundamental positioning in a relatively high risk environment. On the equity side, that means a tilt toward defensive sectors with a focus on balance sheet quality (Healthcare and Consumer Staples stand out). On the fixed income side, we remain positioned in a short-duration and high-quality debt instruments – a strategy initiated to reduce the risk to principal in a rising rate environment.
Find our most recent market Q&A here: https://aamaweb.com/august-2025-market-qa-a-conversation-on-fed-policy-market-valuations-and-the-ai-trend/
ICON Advisers
The markets are loving Chair Powell’s speech. We don’t view his comments as dramatically different from general market expectations. That said, it likely means that we will see a 25 basis point cut in September and another by year-end. It remains to be seen if the long end of the curve will respond positively once things settle down. One thing we think you can expect is a yield curve steepening — something we are already seeing today. Some credit tightening is also occurring, which would be expected if cuts strengthen the economy.
It is worth noting that we expect President Trump to push for a more aggressive cutting schedule.
For ICON’s strategies, we aren’t doing anything differently. Our portfolio management is focused on dividend capture and closed-end fund (CEF) arbitrate. Three percent of the portfolio is in CEFs that liquidated on Friday, so we will have fresh capacity this week.
Main Management
With wording of, “with policy in the restrictive territory”, Fed Chair Powell has implied that cuts are more likely than hikes — something the market clearly likes. This statement appears a little contradictory to the minutes posted the day before the meeting, which felt more hawkish as “Participants noted that, in this context, it was especially important to ensure that longer-term inflation expectations remained well anchored.”
Powell has previously commented that price stability is a necessary condition to ensure achievement of the maximum employment objective. To us, that says the minutes were more focused on inflation, which would mean a lower likelihood of cuts. However, the speech on Friday was clearly more dovish, thus the move up in equities and down in yields.