Walk-Squawk Morning Wire
No Cuts Yet: Fed Holds Fire as Trade Tensions Stir Inflation Fears
🚨 Fed Preview – June 18, 2025: “Wait and See” Stance Faces Inflation & Tariff Crosswinds
The Federal Reserve is widely expected to hold its benchmark interest rate steady at 5.25–5.50% this Wednesday (June 18) at 2:00 PM EDT, followed by Chair Powell’s press conference at 2:30 PM. This decision arrives amid rising stagflation concerns, ongoing uncertainty from new Trump-era tariffs, and dovish inflation data that could complicate the Fed’s message.
🔍 Market Expectations: One Cut or Two?
103 of 105 economists in a Reuters poll expect no change to policy rates this week.
59 of 105 forecast rate cuts starting in Q3 (likely September).
Market pricing reflects ~46bps of easing by year-end—still broadly aligned with March's SEP median.
However, tariffs and geopolitics (notably Israel-Iran) are clouding the outlook for inflation and growth.
🧠 Fed’s Dilemma: Growth Slows, Inflation Risks Persist
The Fed continues its cautious, data-driven approach. Strong job growth, cooling CPI/PPI prints, and below-forecast PCE data give cover to stay on hold. But tariffs may prove inflationary.
RaboBank: Tariffs are “stagflationary,” pushing unemployment up and inflation higher.
Goldman Sachs: Tariffs could knock GDP down 1% and push core PCE to 3.4% in 2025.
UBS: Expects a hawkish lean, likely reducing expected cuts in the dot plot from two to one.
📊 Summary of Economic Projections (SEPs): Key Changes to Watch
2025 Dot Plot: Markets expect the Fed to signal 1–2 cuts in 2025 (down from 2 in March).
Inflation Forecasts: Likely revised higher to reflect tariff pass-through and oil risks.
GDP Growth: Potential markdown from 1.7% to ~1.4%.
Unemployment Rate: Projected to tick up to 4.5% by year-end.
Powell's Messaging: Will likely stress that the dot plot is "not a promise" and still subject to “high uncertainty.” He is expected to re-emphasize patience and the dual mandate balancing act.
🗣 Fed Commentary Signals Hawkish Caution
Kashkari: Tariff-driven inflation shouldn’t be dismissed as transitory.
Goolsbee: Cautious about underestimating inflation's persistence.
Waller: Still sees reason to look through “one-off” price hikes—but is in the minority.
Williams: Describes policy as “slightly restrictive”—not yet aggressive.
Powell: If goals conflict, the Fed will prioritize how close the economy is to each side of the mandate.
📈 Recent Economic Data Snapshot
May Jobs Report: Strong, with steady unemployment at 4.2% (below Fed’s YE target of 4.4%).
Inflation: Cooling across CPI, PPI, and alternative rent data.
Tariffs: Effects not yet fully priced in—but expected to show in Q3 CPI/PCE prints.
🧾 Morgan Stanley: Statement Changes Preview
Minimal tweaks are expected. The Fed may:
Acknowledge a less threatening inflation backdrop, but stop short of dovish language.
Reiterate that it is watching labor market and inflation expectations closely.
Emphasize “elevated uncertainty” from trade, fiscal, and geopolitical policy shifts.
📉 Market Reactions: Cross-Asset Views from the Goldman Desk
🔻 Rates: Long Front-End / Steepener Bias
“The meeting will likely show one cut in 2025. SEP shift will matter more than Powell’s tone.”
– Mike Mitchell, UST Trading
📈 Yield Curve: Steepening in Focus
“Unemployment creeping toward 4.5% could trigger cuts. We still like steepeners.”
– Josh Schiffrin, Financial Risk
💹 FX: Dollar Sensitive to Global Risk, Not Just the Fed
“Tariff guidance could swing FX more than dots.”
– Mark Salib & Isabella Rosenberg, FX Strategy
📉 Equities: Hedge Event Risk, But Stay Long
“Options are cheap again—carry a long vol bias into the meeting.”
– Alexis Slattery, Derivatives
💳 Credit: Stable, Supported by Flows
“Credit spreads resilient—even if equities wobble.”
– Usman Omer, Macro Credit
🔚 Bottom Line: Fed Holds, But Dots May Signal Fewer Cuts
Markets are primed for a hawkish hold: the Fed will stand pat, emphasize patience, and likely reduce its 2025 cut forecast. Tariffs and the geopolitical backdrop complicate the outlook, but Powell will stick to the script—policy is restrictive enough for now, and the Fed will let the data decide what’s next.
🌾 Grain & Basis Market Update – June 17, 2025
📍 U.S. Cash Grain Markets: Mixed Moves in Corn and Soy Basis
Corn basis was mixed across the Midwest to start the week:
Eastern Corn Belt: Strongest bids held steady—Winchester, IN, Dayton, OH, and Fort Recovery, OH all remained +40 to +45 over July.
Illinois River and Ohio River bids ticked marginally higher, while Mid-Mississippi dropped by 1 to 2 cents.
Nebraska interior showed small gains in Ravenna and Blair, offset slightly by Minden’s flat tone.
Soybean basis was also varied:
Central Iowa and Minnesota: Bids remained weak (e.g. -28N at Mason City, -25N at Mankato).
Eastern processors (Decatur IN, Morristown IN, Delphos OH) held stronger basis around +15 to +20.
River markets showed some softness with Cairo steady, but Illinois and Ohio Rivers slipped slightly.
Notably, Cedar Rapids and Sioux City bids firmed up +10 cents nearby.
🚛 Freight Markets: Mixed Trends by Region
Illinois barge freight rose 25% to 430%, while Ohio rates dropped by -12.5% to 320%.
Seasonal increases expected into August and September, with posted rates rising to 675%+ on the Illinois River.
🌐 Export Pipeline: CIF Market Stable
CIF Corn (July) held at 66N, while August gained +3 to 80U.
CIF Soybeans (July) rose +2 to 69N; August down -2 to 74Q.
No trades reported, but basis action signals some quiet optimism in Gulf values.
🏭 Soy Product Markets: Crushers Well Supplied
Soymeal basis was steady nationwide; crushers in IA and MN remained at -56N to -60N, while IL held -25N.
Soy crush margins remain healthy—over $1 per bushel on nearby contracts. Ownership is strong into July/August, but some softening seen in deferred crush bids.
Soyoil basis held firm both interior and Gulf, though futures saw resistance near 55.50 cents on EPA-driven rally reversal.
🌍 World Vegoil & South America
Malaysian palm exports surged (+26% vs. last month), even as production slipped.
Brazilian and Argentine soymeal and oil markets posted moderate price gains, with Brazil July oil up +100 pts and Argentina up +120 pts.
Parana’s Safrinha corn crop condition held steady at 67% G/E; harvest progress is lagging at 8% vs. 29% LY.
🚢 China Demand Tracker
China booked 21 soy cargoes last week: 16 from Brazil, 5 from Argentina, zero from the U.S.
June arrivals total ~11.75 MMT, with August coverage at 9.9 MMT and September at 5.9 MMT, bringing total old crop purchases to ~102 MMT.
U.S. still trails in forward sales; demand remains pointed firmly at South America.
🔄 Cash Market Observations
Corn spreads softened as July broke lower on South American competition and stagnant river demand.
Soy spreads firmed: SN/SQ saw a 13¢ swing, and SQ/SX found support at +7¢ as crushers compete for remaining old crop beans.
Farmer selling has picked up in areas still bidding off July, particularly in the Western Corn Belt.
📈 Technical Note & Outlook
Soybeans: Watch the $10.75–11.00 Nov resistance zone, with potential for $12.00 if August weather turns adverse.
Corn: New crop support tied to wheat rally and soy strength. Trade will be sensitive to crude oil volatility and upcoming EIA ethanol data.
Wheat: Short covering amid harvest delays in the Southern Plains. Watch for quality concerns and increased Black Sea competition (Romania exports aggressive).
🌦️ Crop Weather Outlook
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