Insights 
VT 
The Federal Reserve’s June 2025 FOMC statement reported consistent economic expansion, with stable unemployment at a low rate and somewhat elevated inflation. The Federal Reserve aims for maximum employment and an inflation rate of 2 percent over the long run. Economic uncertainties have increased but remain elevated, with risks of higher unemployment and inflation rising.
The Federal Reserve decided to maintain the federal funds rate target range between 4-1/4 and 4-1/2 percent. They plan to assess future data and risks before adjusting the rate further. The Committee will continue to reduce holdings of Treasury securities, agency debt, and agency mortgage-backed securities.
Monitoring And Adjustments
To maintain appropriate monetary policy, the Committee will monitor incoming information and be prepared to adjust policy if any risks threaten their goals. A wide array of factors, including labour market conditions, inflation pressures, and financial developments, will be considered. The voting members for this decision included several officials, with Neel Kashkari participating as an alternate member.
We’ve now got a fairly clear setup from the June 2025 statement, and while nothing unexpected emerged, the message around inflation and labour markets leaves little doubt on direction. The Federal Reserve kept rates steady—no change from the current 4.25-4.5% range—which tells us they’re still not fully convinced they’ve done enough. Inflation is running high enough to keep them uneasy, yet not so out of control that they’d rush to hike again right away.
Their primary aims lie in preserving jobs and slowing price rises. That’s hardly new. What stood out was the continued emphasis on what might go wrong—plans to be “prepared to adjust” feel more pointed now. There’s an undertone of readiness to hit pause or accelerate the strategy, depending on how things behave over the summer. We should take that seriously.
Heightened Uncertainties
The commentary around “heightened uncertainties” is noteworthy. Powell and his peers aren’t foreseeing a dramatic turn, but they’ve clearly acknowledged the growing pressure—subtle, yes, but layered across labour and consumer prices alike. More importantly, they’ve decided to press ahead with reducing their portfolio, shrinking holdings of government and mortgage debt. This isn’t just balance sheet maintenance; it’s part of a broader plan to quietly tighten conditions without raising rates further.
For us, the mechanics matter. Holding steady at this range tells us the current pricing in short tenors has validity, at least for now. But options volumes and rate-implied paths into late 2025 may not yet be fully accounting for a slower path to easing. There’s still too much bias toward rate cuts in sentiment, despite the inflationary stickiness we’re seeing. Futures markets are clinging to hope—too early, in our view.
Waller and Jefferson remain cautious, and their implied patience lends credibility to the current path. The board isn’t showing any signs of infighting. Consensus seems broad, not just among voters but alternates like Kashkari as well. That lends confidence to the repeatability of decisions heading into the next few quarters.
We’d expect short-dated vol to firm up as we move towards the late July window. The lack of surprise this time means market reactions were muted, but the next round of inflation prints could unsettle the balance. It’s not about a spike or a dip—it’s about shifts that bring the margin calls closer. Pay attention to the two-year and what it starts whispering around August.
Keep an eye on repo spreads and the price action in SOFR. There’s nuance in how liquidity is behaving—not dislocated, not squeezed, but watchful. Rate-sensitive trades need to reflect that the Fed is far likelier to stay put than to pivot near-term. Directional bets grounded in imminent easing might be costing more than they should right now.
We’re managing exposure accordingly, using flyers more than heavy strike commitments. The volatility floor is inching up. The Fed did not blink—neither should we. Let pricing work for us, not against.
