Debate Heats Up Over Fed's Next Move | Real Yield 8/15/2025

Inflation and Interest Rate Expectations - Consumer sentiment has decreased for the first time since April due to rising inflation expectations [1] - The market is actively repricing expectations from the Federal Reserve (FED) for the September 17th meeting [5] - There is a wide range of expectations regarding potential rate cuts, from no urgency to a cut of 100 basis points this year [2][3] - The University of Michigan indicates consumers expect inflation to rise, causing market reactions [3] - The current level of policy rates, 425% to 450%, is considered modestly restrictive [7] - Some analysts suggest the FED funds rate should be around 260%, while others disagree, citing inflationary risks [9] - The market is pricing out the prospect of a rate cut in September, but the next payrolls report is crucial [15] - FED Chair Powell is expected to balance the dual mandate, acknowledging the distance from the inflation target while opening the door to potential rate cuts [19][20] Credit Market Dynamics - Monday saw the most active day in credit deals and volume in three months, though sales fell $9 million short of weekly predictions [26] - High-yield credit market is experiencing a supply boom, with the busiest start since 2021 [26] - Fundamentals are considered strong, with high-quality spread products making sense due to solid consumer fundamentals [27] - Corporate sector is showing resilience, allowing selective movement down in credit quality [29] - Demand dynamics are robust across the credit spectrum, supported by light issuance and inflows into ETFs and mutual funds [30][34] - Geopolitical issues are considered more of an equity market story than a credit market story [40]