Fed still set to cut US rates late this year, say economists, rejecting market pricing: Reuters poll

Reuters poll shows the Fed is expected to keep rates on hold until September, with 61 of 82 economists predicting unchanged policy next quarter and 55 of 82 seeing no cuts until at least September. The U.S.-Israel-Iran war has pushed crude oil >40% higher and the 2-year Treasury yield up over 55 bps, leading economists to raise PCE inflation forecasts to 3.3% (Q2), 3.1% (Q3) and 2.9% (Q4) — roughly 50 bps above forecasts two weeks ago. Markets have largely priced out cuts this year and have added nearly a 30% chance of a hike, keeping a tightening bias for policy and risk assets.

Analysis

The persistence of a higher-for-longer policy path will raise term premia and keep front-end funding expensive for months, not weeks. That mechanism boosts bank NIMs but also suppresses loan demand and increases rollover stress for levered corporates; expect a bifurcated credit cycle where trading and FICC desks see revenue tails while origination and SME lending pause.

An energy-driven jump in headline inflation compresses real yields and should widen breakevens; this transfers wealth toward commodity and real-asset cashflows and away from long-duration nominal bonds. Policy patience plus sticky headline CPI increases the value of inflation protection and real-assets optionality, while simultaneously lengthening the time horizon for rate-sensitive sectors to recover — a multi-month to multi-quarter dynamic.

Market technicals will amplify moves: risk-off hedging (vol and cross-asset hedges) can push short-term rates higher and elevate term premium in knee-jerk fashion, creating tactical windows. The single biggest catalyst to reverse these second-order price dislocations is a rapid geopolitical de-escalation or coordinated releases from strategic reserves — both would likely trigger a sharp unwind in oil, breakevens and front-end yields within days to weeks rather than months.

Key Decisions for Investors

• Buy Barclays plc (BCS) equity, 6-9 month horizon: initiate a 2-3% portfolio position size at market, target +30% upside if NIM tailwind and capital markets recovery persist; implement a 15% stop-loss and hedge with a 6-month 20% OTM put to cap downside to ~12% cost-adjusted loss.
• Buy iShares TIPS Bond ETF (TIP), 3-9 month horizon: allocate 1-2% to capture breakeven expansion; expect 3-6% upside if headline inflation remains elevated vs nominal Treasuries, with drawdown risk limited vs long nominal duration — trim on breakeven reversion or signs of coordinated SPR-like release.
• Crude oil directional hedge/call spread (USO or WTI futures): buy a 2-3 month call spread (e.g., $X/$Y strikes sized to risk 0.5-1% portfolio) to capture further geopolitical-driven oil moves; reward asymmetry ~2-3x premium if tensions persist, with defined max loss = premium paid if situation cools quickly.
• Modest long in Thomson Reuters (TRI), 9-12 month horizon: add a tactical 1% position to play higher sell-side trading volumes and data-service stickiness during volatile markets; upside ~15-20% if cross-asset activity stays elevated, downside ~10% if budgets tighten — use a 12% stop.