Macroeconomic Outlook as of June 2025

  • 1. Federal Reserve Policy & Interest Rates  - The Fed is holding firm for now, but we expect modest cuts as economic risks outweigh inflation concerns.
    • Fed cut in Dec 2024 to 4.25–4.50%; markets priced in 50bps more by mid-2025. No cuts since Dec 2024. 
    • Rates have held steady despite easing inflation—likely a response to political optics and tariff uncertainty.
    • Our expectation: ~50bps in cuts through year-end.
    • Risk remains: maintaining restrictive rates too long could damage economic momentum.
    • Long-duration bonds still unappealing given interest rate trajectory and inflation outlook.
  • 2. Inflation Dynamics - Inflation is sticky and likely to stay above target, challenging traditional fixed income positioning.
    • Inflation likely to remain elevated (2–3%) over the near term and above target for the remainder of the decade.
    • Drivers are mixed:
    • Deflationary: AI-induced labor disruptions reducing demand.
    • Inflationary: Persistent fiscal deficits and accommodative rate policy.
    • Housing softening may contribute to headline CPI easing.
    • Implication: Fixed income faces long-term headwinds from diminished real returns.
  • 3. Labor Market & Economic Growth - The labor market is shifting, not collapsing—expect a cooling, not a crash.
    • Unemployment is low but projected to rise modestly in 2025.
    • AI introduces structural shifts that make labor forecasting more complex.
    • A shallow, technical recession is possible—particularly with early-year weakness tied to tariff effects.
    • Broader outlook suggests a slowing, not stalling, economy.

  • 4. Government Policy: Tariffs, Tax Reform, and Deficits - Policy direction will likely favor tax extensions and rate cuts over fiscal restraint.
    • Tariffs likely become a political bargaining chip, not a structural risk.
    • Tax reform moves to the forefront—especially with intra-party debate around spending.
    • Extension of 2017 tax cuts is the base case; broader reform looks unlikely in 2025.
    • Fiscal sustainability remains a concern: spending is unlikely to fall meaningfully, increasing pressure to cut rates.
  • 5. Investment Strategy Implications - Allocations are tilting toward quality, innovation, and alternatives amid elevated inflation and policy uncertainty.
    • Fixed Income: Shorter durations favored; real returns challenged by persistent inflation.
    • Equities: Navigating a balance between high valuations and AI-driven efficiency gains.
    • Stock Selection: Focused on quality companies adapting and deploying transformative tech.
    • Bitcoin: Considered a strategic asset:
    • Institutional, household, and sovereign adoption continues.
    • Allocation recommended across portfolio structures using comprehensive strategy
  • 6. Technology Leadership & Market Composition - Innovation-driven companies continue to lead, but participation is broadening beyond the Mag 7.
    • Foundational innovation—AI, quantum, humanoids, digital assets—expected to lead global returns.
    • The Mag 7 continues to drive outsized performance, but contribution from the Bottom 493 is likely to rise as valuations broaden.
    • Portfolio construction remains skewed toward innovation-driven companies with durable moats and scalability.
  • 7. Geopolitical Risks - Markets remain focused on fundamentals; geopolitical shocks cause noise, not derailment—so far.
    • Markets continue to absorb geopolitical shocks with resilience.
    • Events such as Middle East conflicts cause brief volatility but are met with rapid recoveries.
    • Tariffs may be headline noise, not long-term policy risks.
    • Vigilance remains necessary, but geopolitical concerns are not the dominant market driver unless significantly escalated.