Fed vs ECB: Divergence at the Breaking Point

⚠️ The #Fed and #ECB interest rate spread is at historically unusual levels. The Fed keeps its policy unchanged at 4.25–4.5%, while the ECB’s cycle appears to be on hold. Markets anticipate the gap will start to close in the coming months.

💰 No further cuts are priced in Europe in 2025. Maybe one in 2026. For now, the dovish cycle is complete: «wait and see» is the message.

✂️ US futures price in around 50bps of easing by end-2025. Two cuts may be on the table before year-end, even as Fed officials argue that inflation remains a bigger risk.

📊 The latest Fed Minutes made it official: most members see #inflation as a bigger risk than jobs. #Tariffs are gasoline for that fear, with the risk now that expectations get untethered. Meanwhile, #payroll revisions showed hiring stalled, and #unemployment rose to 4.2%.

🎤 Next up is #JacksonHole. Powell has the stage to alter tone. Soft labor data argues for cuts, wholesale price spikes argue for patience. Don’t expect him to commit to a move. More likely, he keeps it data-dependent until the September meeting.

🧭 Final takeaway: divergence won’t last forever. Markets are already betting on convergence. Positioning for that shift could matter more than the timing of the first cut.