Fed Officials Remain Divided on Inflation Outlook

Yields fall amid more tariff developments, FOMC minutes. After yields rose 15+ bps over the past few weeks, price action reversed course today.Yields fell 4-7 bps across the curve, with the policy sensitive 2-year now at 3.84% while the 10-year closed just above 4.33%. The move came after additional tariff announcements and before today’s generally hawkish (but mixed) FOMC minutes. Meanwhile, riskier assets rallied, with the NASDAQ up nearly 1% and Bitcoin hitting an all-time high of ~$112k.

Fed voters are split on tariff inflationary impacts. Today’s FOMC minutes highlighted the divide amongst Fed officials over how tariffs might affect inflation. While officials agree that there will be some inflationary effects, Fed doves expect that tariffs will lead to a “one-time increase” in prices that will not have long-term consequences. However, most Fed participants “noted the risk that tariffs could have more persistent effects on inflation.” The divide aligns with the updated Dot Plot, where 10 of 19 officials expected at least two rate cuts by the end of 2025 while 7 projected no moves this calendar year.

President Trump announces steep Brazil tariffs. After enacting a 10% trade levy against Brazil in April, President Trump hiked the rate to 50%, to be effective on August 1. The president cited the “very unfair trade relationship” between the two countries and called out “Brazil’s insidious attacks on Free Elections, and the fundamental Free Speech Rights of Americans” as reasons for the tariff hike. The U.S. is Brazil’s second largest trading partner, and the Brazilian real declined ~3% against the USD after the announcement. Meanwhile, the largest US-listed ETF tracking Brazil’s equities (iShares MSCI Brazil) was down almost 2% after-hours.