July CPI not hot enough to change rate cut expectations for this year, says Subadra Rajappa

Inflation & Tariffs - The report suggests that tariffs' impact on goods inflation was not significant in the current CPI print [2] - Services inflation showed broad-based gains, raising concerns about overall inflation [3] - The expectation is that the impact of tariffs on inflation will increase in the second half of the year [4] - Corporations may initially absorb tariff costs, but will eventually pass them on to consumers, particularly in sectors with low margins like groceries [10][11] - Uncertainty remains regarding the ultimate tariff rate and its full impact on the economy [11] Monetary Policy & Fed - The market anticipates an aggressive path of rate cuts, which is reflected in equity market performance [5] - The analyst suggests the Fed should consider only one or two rate cuts this year due to inflation concerns [3] - Political factors and dovish Fed governors could influence the Fed's decisions [5] - The analyst believes reason will prevail within the Fed committee, leading to rate cuts, but potentially only 25 basis points [6][7] - A 25 basis point rate cut may not significantly benefit the mortgage market or other interest rate-sensitive sectors if the 10-year yield rises [7] Bond Market & Yields - The 2-year Treasury yield is expected to range between 350 and 400 basis points (35%-4%) due to aggressive policy easing already priced in [14] - The 10-year Treasury yield is expected to remain range-bound between 400 and 450 basis points (4%-45%) [14] - The 30-year Treasury yield is more volatile and dependent on global bond yields [14][15]