Brian Pietrangelo [00:00:01] Welcome to the Key Wealth Matters weekly podcast where we casually ramble on about important topics including the markets, the economy, human ingenuity, and almost anything under the sun, giving you the keys to open doors in the world of investing.

Today is Friday, August 1st, 2025. I'm Brian Pietrangelo and welcome to the podcast. We start this week's podcast with some somber news, so I would like to take a moment of silence to reflect on some of the tragedies that we experienced in New York City this week, as well as just outside of Cleveland in Lorain, Ohio, where a number of people were killed. And so I think it's a moment that we do take, not only for those two occasions, but other occasions that happen throughout the world that, again, deserve a moment silence. So take it with me, thank you. And again, thank you for that. And our hearts and prayers do go out to those individuals and families that were affected.

So with that, I would like to introduce our panel for investing experts here to share their insights on this week's market activity and more as we get into a robust agenda of a lot of activity this week. George Mateyo, Chief Investment Officer, Steve Hoedt, Head of Equities, Rajeev Sharma, Head of Fixed Income, and Cindy Honcharenko, Director of Fixing Income Portfolio Management. As a reminder, a lot of great content is available on key.com slash Wealth Insights, including updates from our Wealth Institute on many different subjects and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor.

Taking a look at this week's market and economic activity, we have a robust calendar update. We've got eight updates to share with you. We are going to condense it into chunks of information so that you can capture it all and that's so we can give you a dialog on what's happening in each of these areas, especially with our dialog during the panel podcast. The first three updates are less market moving items, so we're not going to spend a lot of time on them. We're just going to give you the surface level update.

First, we've got the weekly initial unemployment claims stayed very stable at 218,000, so not a lot to talk about there. Second, we had the job openings report that came out earlier in the week at $7.4 million for the month of June, which is down slightly from May, again not a lot talk about there in terms of market moving events, just part of the overall employment picture. And third, we had existing home sales for the month of June decreased by 2.7%. Which again goes back to the factor that we don't have a lot of inventory and therefore overall sales have decreased because of the mortgage dilemma in terms of people having a 3% mortgage pre COVID and a 7% mortgage post COVID and not a lot of turnover for the overall inventory of homes.

Now for the next three, they're pretty important reports for the week and do have market moving implications. So we're going to talk about them a little bit more in detailed with starting with number four. GDP for the second quarter of 2025 came out and the real GDP number was an up 3% in terms of quarter GDP growth quarter over quarter. Now this was positive because last quarter in the first quarter of 2025 we did have a minus 0.5% growth but both of these quarters numbers were affected by the overall trade imbalance in terms of what is called net exports as part of the calculation within GDP. So certainly hurt that on the first quarter of 2025. We saw a reversal of that in the second quarter of 2025 to help stabilize the overall real GDP number up 3%. Within that number, we did see some slowing of consumer spending.

And number five, just yesterday, we got the PCE inflation or personal consumers expenditures inflation number that came out, which is important because that is the number that the Fed looks at. However, it was one day after the Fed meeting, which we'll talk about here in a second. And the number was OK, meaning that it did not go down, but it also went up a little bit in the overall number at 2.6% year-over-year inflation in the month of June. Now, that's a little of a tick up, but we look more at the core inflation number, which excludes food and energy, which remain consistent at 2% year over year in June, which was the same as May. The less favorable news is that it's not going down, and also in spite of taking a look at whether or not tariffs will have an implication on overall inflation is a to-be-determined and often talked about within the circles of the economics and also the Federal Reserve.

And sixth, we got the employment situation report just this morning at 8.30 which had some pretty market-moving information in it. The first is the new non-farm payrolls report where only 73,000 new nonfarm pay created for the month of July. And the overall unemployment rate ticked up to 4.2% from 4.1%. But however, for the last six to nine months or so, it has been between 4.10 and 4.20, or 4.0 and 4 .2. So not a lot of movement there in terms of direction. However, the biggest news of that report. Unquestionably was that the two prior months for the new non-farm payrolls numbers for the months of May and June were revised downward to the tune of minus $258,000. So that is a significant number that we haven't seen in terms of revisions to that magnitude and it does take into consideration that the jobs market may be softening in terms of the new Non-Farm Payroll numbers not only because the month of July at $73,000 was lower than expected. Lower than the average, but also the 258,000 negative revisions for the prior two months was a pretty big impact.

Then the last few items to discuss, certainly number seven, the Federal Open Market Committee did have their meeting on Wednesday in their press conference. We'll get an update from Cindy in that case.

And then last eighth, we've got the midst of earnings season for Q2. We'll have Steve talk about what that means in terms of some major companies and the overall trend for the quarter in terms of earnings. So with that, a lot of information to digest with our panel today. We will start with the update from Cindy in terms of what the Federal Open Market Committee did and communicated on Wednesday. So Cindy, what's your update?

Cynthia Honcharenko [00:06:31] So the Fed kept the federal funds rate unchanged at the target range of four and a quarter and four and half percent. This was the fifth consecutive meeting without a rate change in 2025. I wanna highlight governors, Michelle Bowman and Christopher Waller dissented preferring a 25 basis point cut. This is significant because formal dissent by board governors is very uncommon and two dissenters voting together has not happened since 1993. Plans to continue reducing its holdings of treasury and agency-backed mortgage debt was confirmed. And Chair Powell emphasized a cautious data-driven stance with no commitment to a September rate cut. So what the rationale is behind the decisions, there's three, one is elevated inflation. Inflation still remains above the Fed's 2% target.

The second is the labor market remains robust. Unemployment remains low and employment trends are still solid. And third, growing trade uncertainties. Powell pointed to rising tariffs, adding to costs on certain goods and raising concerns about inflationary pressures persisting. So the takeaways from the press conference, I really thought it was a dud initially, but I did analyze it further and I came away with seven. One being there was no commitment on a September rate cut. Powell stressed that no decisions been made regarding a rate cut at that meeting. Uh, second current monetary policy was described as modestly restrictive. So the current stance is deliberately restrictive, yet not overly tight and views viewed as appropriate for now.

Next is tariffs seem to be driving inflation risk. Powell acknowledged that tariff-induced price increases are emerging across certain goods categories. For example, imported durable goods, especially household furniture, which was up 1.3% in June, appliances up 1,9%, and computers and electronics were up 1.,4%. Other goods impacted included recreation products and retail imports more broadly.

Powell mentioned the Fed is being pulled in two directions. The Fed faces conflicting pressures of a solid labor market versus still inflated elevated inflation. Then the market pricing recalibrated following the meeting and the press conference. Powell's remarks for the expectation for the September cut dropped sharply. Fed independence was underscored. Powell strongly asserted that the Fed does not consider government borrowing costs when setting interest rates. And he also emphasized the importance of data-driven and politically independent approach.

And then finally, again, the notable descent of Michelle Bowman and Christopher Waller were acknowledged. And this is the first dual descent since 1993. So what are the likelihood of Fed cuts later this year? Well, before the meeting, September 2025 rate cuts were around 65% and that reflected a strong expectation for at least one rate cut soon. After the meeting the odds dropped to around 46 to 49% and finally settled in around 39%. September seems to be no longer the expected timing for rate cuts and the markets see it as a close call at best. The first cuts are likely coming in fourth quarter with probability rising steeply as we approach late October and December. And this shift reflects the feds previously expressed caution and the lack of conviction in the third quarter move. And that was reiterated by Chair Powell in the conference.

And then finally, I wanted to hit on some comments about the descents with Michelle Bowman and Christopher Waller. So Michelle Bowman, her rationale for dissent is the labor market is showing stress and her view on inflation is one of minimal concern and that tariffs are viewed as temporary. Christopher Waller, his rationale for descent was weak payroll growth and job momentum. And his view on inflammation is that tariff risk is limited and very short-lived. This is very significant because their vote marked the first dual dissent by Board of Governor members since 1993. And this also highlighted internal disagreement at the Fed's most senior level. Both of these governors are Trump appointees and their dissents add to speculation around Powell's succession.

Plus Waller's been frequently mentioned as a potential candidate for Fed chair in 2026. And finally, while some analysts view that Bowman and Waller. Waller's dovish economic stance politically aligns with President Trump's recent pressure on Chair Powell to lower rates. Others contend their arguments are genuine concern for the labor market and not political. So after I gave you that, a lot has changed since the Fed announcement in Powell's press conference. George, Rajeev, I'd be interested to hear your takeaways from this week's Fed meeting and the most recent updates we received this morning.

George Mateyo [00:12:02] Well, Cindy, you're right to say that it started off as a dud. And this week kind of started off the same way where we had a lot of news throughout the week. And it really, I guess, kind of took a crescendo as we went through the rest of the week, here we are Friday morning at 10, 15 or so talking about the Fed that did nothing but said a lot. And I guess they didn't say much by dissenting. I guess that was the key takeaway from my perspective. And Chair Powell used this term that he wanted to be efficient. And I'm not sure if that's been really be the death knell in terms of his overall stance and in terms of where we go for breakouts from here. But I don't think the market cared for it that much. But the market now, as you pointed out, started to shift its focus on the labor market.

And you're right, we talked a little bit about Waller, I think about maybe a month or so ago, we mentioned to him that it's probably a dark horse that could probably emerge as a potential replacement for Jay Powell. Now he seems to be vindicated, I guess, is the word of the day in the sense that he was dissenting this week, and also signaling the fact that the labor market was showing some weakness, and we've surely got that today. I think we've also been pretty clear in arguing the fact that just because tariffs have not been impacted or not impacted the economy doesn't mean that they wouldn't. And now I think what kind of seeing that actually take place. It's not so much tariffs right now as it is doge and some other things that are causing the labor market to slow down a little bit. But I'm sure that the uncertainty factor is not lost in anybody. And so we've been thinking for a while that there isn't much firing going on in a big way, but there shouldn't be not much hiring going on either.

And that was also born out in some of the data this morning. Earlier this week, we also got some news that respect that further that idea in the sense that the number of jobs that were opened last month fell quite notably in At the same time, though, the claim numbers that Brian pointed, talked about had remained stable. So again, it's kind of this notion that things are slowing, but not really collapsing just yet. But certainly this is going to be the snooze we got this morning in the sense that the payroll numbers that were revised in the prior month were quite notable in the sense that it does seem that the labor market really started to show some cracks.

So we'll pay attention to this for sure. I don't think I still don't think this means our recession is imminent, but I think it does further validate the case that a slowdown is upon us. And we're starting to really see that really manifest itself in overall risk markets this morning with stocks down quite a bit and the bond market's up. And I guess you could say that we've got one big, beautiful bond market that people are looking at right now. There's plenty of yields falling as much as they're falling right now. How would you characterize what's going on?

Rajeev Sharma [00:14:28] That's a great way to put it, George. And I like that one, beautiful bond market. But, you know, I really think that a couple of things here, I mean, we were in this growth scare situation earlier in the year, you did see a run to safety haven assets. We're seeing that today as well. I think there is a scare that's coming up on the economy here with the cooling of the labor market based on the latest jobs report. Talk about volatility though. I mean we've seen a lot of swings in the market this week. I mean Cindy and you both have covered most of the takeaways from the Fed meeting.

I would just add a couple things there and then get into how the yield curve has been shaping throughout the week. But one thing, I mean, we're focused on dissents. I think it was one of the biggest key takeaways from the FOMC meeting. But what's interesting is, if you look back in history, dissents were happening. It's just recent history that we got so accustomed to unanimous voting, unanimous outcomes in the FOMC meeting that this kind of created some waves. And I really don't think it should have really been a big surprise because Waller and Bowman have been coming out pretty strong in their narrative and their sound bites and saying that, you know, we, we really feel that rate cuts should happen now, uh, then all of this does cause some noise in the market and we did see, uh, the, uh the huge recalibration, if you will, and rate cut expectations from the beginning of the week to the FOMC statement release, where we saw September rate cut expectation at around 68%.

And then as soon as the press conference started, many viewed that Chair Powell is more hawkish, who brought those rate cut expectations below 50%. And then we get to this jobs number, which was a quite significant move in the market. We saw basically those who were doubting whether we were gonna have rate cuts or not in September are now not doubting it anymore. And what happens here is you start getting the narrative that the Fed got it wrong and the White House was right. And so once you start thinking of that narrative, it's really propelling these rate cut expectations to now over 75% of an odds for a September rate cut.

And we should have more rate cuts also is what the screens are telling us this morning. Now, job growth is extremely important. It's obviously part of the dual mandate of the Fed. We focused a lot on inflation, a lot of the soundbites that we've heard from Fed Chair Powell were about inflation and how the impact on inflation could be transitory, maybe not as impactful as many people thought. But inflation nonetheless has been quite stubborn over all this timeframe. And now you've got the labor market that's cooling. And I think that's adding to this feeling that bond markets are gonna be bullish going into this new month that we're going into. And you can see that in the yield curve too. I think they did pick up a little bit after the press conference of Fed Chair Powell.

You did see yields of the two year, which is most sensitive to Fed policy, move up to about 4%. In the thought that maybe we're not gonna get the rate cuts that the market is expecting this year. But as soon as you saw this jobs number come out, which surprised the market, you did see a rally in treasuries. You see a see a rally in the bond market. And what's happening here is you're starting to see the two-year treasure note yield start to drop pretty significantly. 17 basis point drop right when the report came out this morning.

So the two year went from, as I said, close to 4% to now 3.79%. That's the biggest decline on the day of a job report released since 2004. So the market's looking at this data, just like the Fed is. The 10-year Treasury Note yield fell nine basis points to 4.29%. So those that we're talking about are gonna get 5% by the end of the year on the 10 year. Now you're looking at a 10 year at 4. 29%. So these numbers are pretty significant. This jobs report is very significant. I think it puts September squarely back on the table, obviously, but it does ask a lot of questions of Did the Fed get it wrong and have they been late to the game?

George Mateyo [00:18:24] Yeah, I'm not sure if we're going to say it's a slammed dunk case that we get a rate cut. I think you're right to say that the odds have gone up a lot, but we still have a lot of information to chew between now and September, of course. A lot of other things can come out of the woodwork too. And not least, which of course, inflation, where if that does stay somewhat sticky, as we saw this week, maybe that also gets the market on guard a little bit. But one thing we've often talked about, Steve, has this notion to do with frothiness and speculation. Some of these meme stocks that we talked about last week were all the rage just a few days ago. My guess is that they're probably coming off the boil a little this morning. But certainly if we kind of walked into this week we talked the fact that complacency was rising. And this job report didn't help it.

Stephen Hoedt [00:19:07] Yeah, I think you're right on that, George. I mean, at the end of the day, the last week of July marks a seasonal peak. August typically kind of chop a little bit back and forth. And then you look at September and October being historically. Difficult months for the market. So, you know, I think it wasn't lost on any of us that as we flip the calendar to August, the tape starts to get a lot more challenging. And we certainly got a bunch of data this morning that that's made it a more challenging market for us to navigate. I mean, I stare at my Bloomberg screen right now and I see a 90% chance of a rate cut in September being priced in to the short end of the yield curve.

The two years telling you the Fed's behind the curve. And I think that, you know, as we look at heading into the fall, I think it's becoming apparent to people that the administration, say what you want about them. And look, this week has been kind of crazy with some of the trade policy switches. I mean, the copper market falling the largest amount on record because you got a reversal in of policy there and we can.

George Mateyo [00:20:20] I was going to ask you about that, Steve. I'm sorry to interrupt you, but is copper, is that all tariff driven or typically copper is kind of viewed as a harbinger for the economy itself.

Stephen Hoedt [00:20:29] I think it was all tariff driven, George, because they had talked about having the tariff be on copper itself, and then they changed it to basically being on products made with copper. What I don't understand is, if you're trying to incentivize mines to be built in the United States, why you changed the policy to what they changed to, and it doesn't and accomplish what they said they wanted to accomplish in the first place. But my guess is that the lobbying of the companies that use copper was much more influential in the U.S. Than the mining companies in the US. So, at the end of the day, the policy was changed.

But my point is that they're... It was a crazy week for a lot of reasons, but to come back to the Fed, it seems to me anyways, that the administration has played this thing like a Stradivarius, because at the end of the day, Bye. If you look at the way that the terms are laid out for the Fed governors, President Trump would only get one pick to pick another member of the FOMC. Even if he -

George Mateyo [00:21:53] One pick plus the chair, right?

Stephen Hoedt [00:21:56] Well, he can pick the chair and the chair can either be a new person or it can be somebody who's there, but he only gets to put one new person on based on the way the Fed chair or Fed governors come out.

They have 13 year terms, they're staggered every two years. So basically, you can't have a president replace the entire FOMC is the way that it works. Right? So, there's some longevity there, but at the end of the day. Because of the way that Chair Powell has maneuvered here, and the fact that Waller's dissent looks spot on, in terms of the call on the labor market being weaker than what the data was showing and the revisions coming out in favor of that today, it looks like there's a higher chance that Powell would end up resigning instead of sticking around as a governor after his term is up.

The administration appoints a new chair, which they likely will do. And that would give President Trump a second bite at the apple in terms of appointing another member of the FYMC. So I think that the way that this looks like it's playing out, it couldn't have gone any better for the administration. Albeit, I think they do want to see the economy stronger than what it is and the labor market stronger. But from a policy perspective, It really does look like they've got call right here and that the Fed is, you know, to use the phrase that the President is using that they're too late on this.

Brian Pietrangelo [00:23:47] Interestingly enough, there is no Fed meeting in August, so we've got the six weeks that takes us to September 17th, but there is a little bit of a difference about midway through that point where the Jackson Hole Symposium gets a lot of coverage and Jay typically speaks at that conference. So we'll see what they have to say there. We'll also get a couple more inflation reports and we'll get another jobs report at the beginning of September. But before we close, Steve, how about what's happening with earnings in the second quarter and some this week?

Stephen Hoedt [00:24:14] Yeah, you know, it's been a busy week, very busy week for earnings and the major tech companies reported. The reports have been mixed, I think is the best way to put it. Microsoft and Meta had reports that were very favorably received by the street yesterday and Apple's report was kind of, And you've got the market kind of looking at things today, going, okay, is there anything else that we need to think about here? So I look at it, Amazon also was a little bit weak. So it's not been across the board strength for the MAG-7 in terms of the reporting impact.

Very clearly, the AI theme remains front and center in terms capital spending and the underlying situation in terms of earnings growth in the economy, haven't seen any change in earnings revisions coming out of this. It still looks fairly good to us. But again, I think that it's a choppy tape as we head now into August and the early fall.

Brian Pietrangelo [00:25:27] Well, thanks for the conversation today, George, Steve, Rajiv, and Cindy. We appreciate your perspectives. And before we close the podcast today, wanted to give you a reminder that we are having our Key Wealth Institute National Client Call coming up on Tuesday, August 19th, 2025 at 1pm Eastern, where we're going to give an update on the implications for planning purposes of the One Big Beautiful Bill Act with some of our experts from the Key Wealth Institute.

So Tuesday, August 19th, 1 p.m. Reach out to your advisor or contact if you haven't received an invitation. So thanks to our listeners for joining us today. Be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results and we know your financial situation is personal to you. So reach out to the relationship manager, portfolio strategist, or financial advisor for more information and we'll catch up with you next week. To see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

Disclosures [00:26:33] We gather data and information from specialized sources and financial databases, including, but not limited to, Bloomberg Finance LP, Bureau of Economic Analysis, Bureau of Labor Statistics, Chicago Board of Exchange Volatility Index, Dow Jones and Dow Jones NewsPlus, FactSet, Federal Reserve and corresponding 12 district banks, Federal Open Market Committee, ICE Bank of America Move Index, Morningstar and Morningstar.com, Standard & Poor's, and Wall Street Journal and wsj.com. Key Wealth, Key Private Bank, Key Family Wealth, KeyBank Institutional Advisors, and Key Private Client are marketing names for KeyBank National Association, or KeyBank, and certain affiliates, such as Key Investment Services LLC, or KIS, and KeyCorp Insurance Agency USA, Inc., or KIA.

The Key Wealth Institute is comprised of financial professionals representing KeyBank and certain affiliates, such as KIS and KIA. Any opinions, projections, or recommendations contained herein are subject to change without notice, are those of the individual authors, and may not necessarily represent the views of KeyBank or any of its subsidiaries or affiliates.

This material presented is for informational purposes only and is not intended to be an offer, recommendation, or solicitation to purchase or sell any security or product or to employ a specific investment or tax planning strategy. KeyBank nor its subsidiaries or affiliates represent, warrant, or guarantee that this material is accurate, complete, or suitable for any purpose or any investor. It should not be used as a basis for investment or tax planning decision.

It is not to be relied upon or used in substitution for the exercise of independent judgment. It should not be construed as individual tax, legal, or financial advice. Investment products, brokerage, and investment advisory services are offered through KIS, Member FINRA, SIPC, and SEC-registered investment advisor. Insurance products are offered through KIA. Insurance products offered through KIA are underwritten by and the obligation of insurance companies that are not affiliated with KeyBank. Non-deposit products are not FDIC-insured, not bank-guaranteed, may lose value, not a deposit, not insured by any federal or state government agency.