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Fed Rate Cut Hopes Rise

Fed Rate Cut Hopes Rise

💲Treasuries rallied today in light of weaker-than-expected economic data, prompting debt investors to expect two rate cuts from the Fed.

Ankit Sinha
June 05, 2025

Silver banana goes to…

In this issue of the peel:

📈 The S&P 500 and the NASDAQ were both marginally up by <0.01% and 0.32%, respectively, with the healthcare and communications industries outperforming the index.
💲Treasuries rallied today in light of weaker-than-expected economic data, prompting debt investors to expect two rate cuts from the Fed.
🏦 The BLS (Bureau of Labor Statistics) announced that it used less precise methods for the collection of data. How reliable is the current inflationary data being provided by the BLS?

Market Snapshot

Banana Bits

The Department of Education announced that Columbia University does not meet accreditation standards due to their handling of Palestinian protests.
The BLS (Bureau of Labor Statistics) is understaffed as a result of the efforts of Elon Musk and DOGE.
Putin vowed to respond to a Ukrainian drone strike deep in Russian territory.
Economists are beginning to question the quality of U.S inflation data.
Trump’s current “Mega Bill” would increase national debt by $2.4 trillion over the next decade, if passed.
Reddit is suing Anthropic over an alleged breach of licensing agreements.

The Daily Poll

What worries you most about the current macro climate?

Previous Poll:

Who gets hit hardest by rising oil prices?

Regular consumers: 23.3% // Airlines and shipping: 10% // Oil-dependent manufacturers: 12.5% // Literally everyone: 54.2%

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Macro Monkey Says

Two Fed Cuts Incoming?

Yesterday, the yield of the 10-year U.S. Treasury decreased by over 10 basis points to about 4.357% after it was announced that there was a “contraction in U.S service providers” and a “deceleration in hiring.”

Despite the fact that this may seem like less than exciting news, debt investors seized the opportunity to load up on the 10-year Treasury due to the increased likelihood of an additional rate cut by the Fed. The Fed has stood their ground most of this year, asserting to maintain interest rates so as not to push the U.S into stagflation.

This could happen because if the Fed cuts rates prematurely, and businesses remain cautious, supply constraints persist, and consumer spending increases due to the rate cut. All of these factors combined could cause demand to increase, but supply would remain the same, thus causing a supply shock and potentially stagflation.

Regardless, the situation has definitely changed, and the Fed has a crucial decision to make during the next FOMC meeting in mid-June. Additionally, the ECB (European Central Bank) is almost certain to cut rates this week, despite its inflation rate being above 2%.

Something important to keep in mind here is that the Fed’s situation differs significantly from that of the ECB. America has stickier inflation, a more resilient labor market, and, generally speaking, stronger growth. With that being said, we think it's unlikely to see a rate cut by the Fed in June, but two rate cuts this year are certainly a possibility.

Source

Another thing to note is the Fed’s extremely conservative approach to the economic uncertainty caused by tariffs. The members of the FOMC are likely looking for tangible inflationary effects on the American economy before cutting rates, and the idea that the Fed would cut rates based on those ideas alone is improbable.

However, if there is a continued slowdown in America’s employment, along with increased inflationary pressures, that could lead to an additional rate cut. Furthermore, if this is the first of many unemployment and inflationary dominoes to fall, the Fed may have no choice but to cut rates twice.

The Takeaway?

While this employment data alone is likely not enough to prompt the FOMC to cut rates twice this year, it could be the first step towards two rate cuts. Additionally, the employment report coming out Friday, as reported by the BLS, should be more indicative of the future employment situation in the U.S.

Career Corner

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Answer

Go through the pros and cons of each (briefly, or stick to the one most relevant) and then use that to explain why you think the pros of X make it the best in Y situation (or overall, depending on the exact interview prompt).

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What's Ripe

Guidewire Software Inc. (GWRE) 16.4%

Guidewire Software, a global cloud-based platform for property and casualty insurers, saw significant strides in its stock price following a strong earnings call.
They reported their fiscal Q3 2025 earnings smashing analyst estimates, with an adjusted EPS of $0.88 (estimated $0.47) and a 22% YoY revenue increase since Q3 2024.

Peloton Interactive Inc. (PTON) 12.2%

Peloton’s stock price surged significantly after the company announced the “Peloton Repowered” marketplace. This is a secondary marketplace where Peloton users can buy and sell the product, introducing a slight diversification of Peloton’s revenue streams.

What's Rotten

Asana Inc. (ASAN) 20.5%

Asana Inc., a work management software platform, saw its stock plummet after retracting its guidance for the year, despite solid earnings. While Asana beat earnings for Q1 2026 of the fiscal year, due to macroeconomic pressures, they decided to withdraw their estimates for adjusted EPS and revenue.

Dollar Tree Inc. (DLTR) 8.4%

Despite beating earnings for Q1 of the fiscal year, similar to Asana, they reduced their guidance for the rest of the year, mostly attributable to tariff pricing. Dollar Tree went as far as to indicate that their EPS could decrease up to 50% YoY, citing a 145% increase in the cost of some imported goods.

Thought Banana

Can We Trust the BLS Numbers?

Due to hiring freezes implemented by Elon Musk and the Department of Government Efficiency, the BLS reported that shortages of employees significantly affected their ability to measure U.S. inflation during April accurately. Government statisticians had to use less precise methods to estimate price changes, possibly resulting in inaccurate reports.

While there was no evidence of efforts by anyone to produce falsified reports, the understaffed nature of the BLS raises many questions regarding the accuracy of the reports.

To calculate the inflation rate, the BLS must send hundreds of workers to cities around the U.S., checking in on businesses and the prices they charge. This data is then brought to the government statisticians, who use the data to calculate CPI (Consumer Price Index) metrics.

The only issue is that due to the lack of staff, the BLS couldn’t send as many workers to check in all the businesses as they had previously. As a result, the statisticians had to use several alternate methods to calculate the CPI, as released in May.

Source

As shown above, government statisticians used almost 30% alternative methods to calculate the latest CPI metrics, nearly double what it has been in the past 5 years. This would not only be problematic because of misleading the market, but also because it misleads the Fed, which makes decisions based on inflationary data.

Additionally, if the inflation statistics reported by the BLS are inaccurate, it could mean that there is a significant difference between the state of the American economy and how the market is pricing it. This could result in mispriced stocks and other assets, which could witness a major selloff if inflation reporting is delayed.

Furthermore, any traders who make their trades based on inflationary data and expectations forecasted by the BLS could be in some hot water. More importantly, this information regarding the potential skewing of inflationary statistics puts the Fed in an extremely difficult position due to the uncertainty of inflationary statistics.

The Takeaway?

While the CPI data reported by the BLS isn’t necessarily incorrect, there certainly is a heightened chance of error with the excessive usage of these alternative methods.

Furthermore, it will be extremely interesting to see how the markets react to Friday’s employment data reported by the BLS, given these uncertainties. It is definitely a possibility that the markets only have a marginal reaction to significant employment data due to the questions surrounding its credibility.

The Big Question: If the BLS can’t gather accurate data, is it time for alternative inflation trackers?