The US Fed's decision to pause rate cuts in June was in line with market consensus, SPDB International released a research report saying. In response to tariff challenges, the Fed lowered its 2025/ 2026 GDP forecasts for the US, and raised its 2025-2027 unemployment and inflation expectations, which may imply an increased stagflation risk.

SPDB International maintained its forecast that the Fed will resume rate cuts as early as September, with two rate cuts for the year, each by 25 bps.

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Regarding tariff negotiations, after the US-China London talks in June, US President Donald Trump said that the US would maintain an average tariff of 55% on Chinese goods, while China would relax export controls on rare earths. This aligns with the broker's basic assumption of maintaining the status quo on tariffs in its 2H25 outlook report, which also helps alleviate short-term market concerns about the US-China tariff war.

However, there is no clear trade agreement announced yet, and it is unclear whether this commitment is permanent or temporary.

The Fed still hopes to see how significant the impact of tariffs on inflation is and whether the tariff is one-off impact before deciding on rate cuts, according to the Fed's statement. The broker believed that the Fed may remain cautious about rate cuts in the short term, with the next rate cut likely not occurring until September.

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