FED – Easing but surprisingly hawkish
Last week, the Federal Reserve (FED) cut rates by 25 basis points as expected, but Powell’s press conference struck a notably hawkish tone. He firmly pushed back on a December cut, but he said underlying inflation, net of tariff effects, is closer to the 2% target. Front end rates sold off at around 10 basis points subsequently. The remarks underscored a split FOMC, and we foresee a very heated debate on the future policy path. With US data surprising on the upside, we believe the Fed may adopt a progressively more hawkish tone.
ECB – Comfortably waiting
Last Thursday, the European Central Bank (ECB) kept rates unchanged, as widely anticipated. The overall message flagged a resilient economy with lingering uncertainty reduced, and Lagarde’s tone was mildly hawkish, noting that downside risks now look more contained. We expect the ECB to wait comfortably, focusing on the contribution to growth that will come from fiscal spending in the coming quarters.
Trump and Xi – An empty handshake
After multiple delays, last week Trump and Xi met in person and agreed to extend the trade truce for another year. Headlines pointed to lower U.S. fentanyl-related tariffs on China, and China pledged to boost rare-earth exports. In our view, China still holds leverage in any high-level talks, and any U.S. escalation looks more like negotiating tactics than policy shifts.
Algebris Investments’ Global Credit Team
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