July 28, 2025

QuickTakes

Wednesday Is Not Just Fed Day

But Also Treasury’s Refunding Day

On Wednesday, the Federal Open Market Committee will announce its latest monetary policy decision. Odds are that it will be a non-event, i.e., the federal funds rate will remain unchanged (chart). The only drama will be whether the FOMC sticks to the current party line: "We are in no rush to lower interest rates." Or, will it signal a dovish pivot?

If Governors Christopher Waller and Michelle Bowman dissent from the vote, then the rest of the FOMC's voting members have decided to stick with the relatively hawkish party line. If they don't dissent, then expect that the FOMC's participants, including Fed Chair Jerome Powell, will signal that they will be considering a rate cut at their September meeting. President Donald Trump selected Waller and Bowman to serve as Fed governors, and both are dovish.

Another significant development for the financial markets may occur on Wednesday morning when the US Treasury outlines its plans for financing the federal government's borrowing needs through the issuance of Treasury securities. The Quarterly Refunding Statement (QRS) provides detailed plans for auctions of notes, bonds, Treasury Inflation-Protected Securities (TIPS), and Floating Rate Notes (FRNs) to refund maturing securities and raise new cash (chart).

This afternoon, the Treasury issued a press release on its marketable borrowing estimates for Q3 and Q4. The financial markets didn't flinch on the news that the Treasury expects to borrow $1.007 trillion in privately held net marketable debt during Q3, $453 billion higher than the amount announced in April 2025 (chart). In Q4, the Treasury expects to borrow $590 billion in privately held net marketable debt.

On Wednesday, the QRS will indicate whether Treasury Secretary Scott Bessent has signed on to Trump's recent proposal to refinance the federal government debt with short-term Treasury bills until Powell's term as Fed chair expires in May of next year. We aren't sure whether the bond market would welcome the idea or reject it. Our hunch is that the Bond Vigilantes would react badly to Yield Curve Control by the Treasury.

In other news, the regional business surveys conducted by five of the 12 Federal Reserve district banks are now available for July. Collectively, they showed a solid rebound in activity, suggesting that the national M-PMI remained around 50.0 this month (chart).

The regional composite for the prices-paid index rose again, while the prices-received index edged down but remained elevated (chart). They both suggest that tariff-related inflationary pressures still might lift the CPI inflation rate from 2.7% y/y in June back above 3.0% in the next few months, maybe.

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