can lead to lower standards of living. Accordingly, consumer sentiment surveys in 2025 have trended lower, particularly the gauges of future expectations. Stake Your Positions The dot plot of the SEP revealed that the Fed board members are currently encamped in two locations, separated by 50 basis points (0.5%). Of the 19 voters, seven are projecting no rate cuts by the end of 2025, and another eight are projecting two cuts. It’s unusual for the plots to be heavily weighted at two levels that are not contiguous, and I think it reflects that the board collectively doesn’t have a feel for the upshot of trade policy for the rest of the year. In fact, Chairman Powell said as much in his testimony to Congress the week of June 23. Still, whether the number of rate cuts for the remainder of the year comes to zero or four, the target rate of fed funds will remain historically elevated. This will probably result in the shape of the yield curve remaining relatively flat. A couple of wild cards are still in the mix: 1. Supply issues, as Uncle Sam continues to go ever deeper in debt, with institutional investors ready to act, and 2. geopolitics, and the dollar’s continued privileged status as a safe haven in times of turmoil. Running in Place Given all of this, the Fed seems able to sit and watch for a while longer before making any moves, especially with the labor market remaining solid. As stated previously, we could be in for an extended stretch of range-bound yields, and 2025 so far has seen just that, as the last rate cut was December 2024. And what type of bonds do well in stable rate environments? Ones with options, which account for about 80% of the dollars in community bank bond portfolios. The reason is that the callable bonds won’t get called en masse, and investors get to enjoy the incremental yields for periods into the future. So, where this takes us is a place where our central bank — the Federal Reserve — is doing a whole lotta thinkin’, and maybe not so much shakin’. Goodness gracious, great balls of fire. Jim Reber (jreber@icbasecurities.com) is president and CEO of ICBA Securities, ICBA’s institutional, fixed-income broker-dealer for community banks. The Show-Me Banker Magazine | 21
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