FXStreet reports—Natixis's latest FOMC outlook indicates that weak June employment data (non-farm payrolls rose by only 57,000) and flat core CPI month-over-month have given the Fed “breathing room,” with expectations that the July meeting will hold rates steady and extend the pause through 2026. Internal Fed sentiment is mixed—Logan may vote against, but Walsh signals a dovish tone. However, escalating tensions in Iran and new tariffs pose upside risks to inflation; should either risk materialize, Walsh may be forced to raise rates.
CoinMarketCap APP report — During the European session on Friday, July 24, the USD index, after reaching a high of 101.54 on July 2, entered a period of consolidation at elevated levels and is currently trading around 101.35. Market pricing for the interest rate decision at next week’s Fed meeting remains divided — holding rates steady remains the base case, but a rate hike has not been fully ruled out.
According to CME's "FedWatch Tool," the probability that the Fed will hold rates steady in July is 65.3%, while the probability of a cumulative 25-basis-point hike is 34.7%. The probability that the Fed will hold rates steady by September is 17.6%, the probability of a cumulative 25-basis-point hike is 57%, and the probability of a cumulative 50-basis-point hike is 25.4%.
Economists Christopher Hodge and Selin Aker from Natixis noted in their latest FOMC outlook report that recent data has given the Federal Reserve some “breathing room,” and they expect the Fed to hold rates steady at its next meeting, with this “extended pause” potentially lasting until 2026.
Natixis noted that the incremental data since the June FOMC meeting, while "limited," has overall been "dovish," providing data support for the Fed to maintain interest rates unchanged.
Labor market: The June employment report was “mixed but softer than previously.” Non-farm payrolls increased by only 57,000 jobs, far below the three-month average increase of 164,000. More concerning is the structural decline in labor force participation—previously, the drop in participation was primarily driven by older U.S. workers exiting the labor force amid a significant rise in asset prices; however, the June decline was concentrated among prime-age workers (25–54 years old). Natixis warned that if this trend continues, it could signal “frustration among America’s largest working-age group in their job search,” raising concerns about consumer prospects.
Inflation data: The overall CPI dropped 0.4% month-over-month in June, primarily driven by a sharp decline in energy prices during the temporary ceasefire between the U.S. and Iran. However, core CPI, which is more relevant for policy decisions, remained flat month-over-month, indicating that disinflationary pressures are still underway. Natixis estimates that components mapped from CPI and PPI to the Fed’s preferred inflation metric (the PCE deflator) suggest that the June PCE reading may fall below the Fed’s 2% target.
This combination—softer employment data and cooling inflation—provides strong data support for the Fed’s “extended pause.” Natixis emphasizes that while the June inflation data was “abnormally low” (significantly below consensus), its “signaling value is not abnormal”—the disinflation process continues to progress toward the 2% target.
Despite dovish data, the Federal Reserve officials' public communications have presented a mixed but overall hawkish stance.
Hawkish camp: Waller, Logan, Harker, and Kashkari have all expressed continued concerns about inflation. Dallas Fed President Logan is currently the only FOMC voting member publicly advocating for a rate hike. Natixis expects her to dissent at next week’s meeting, and Cleveland Fed President Harker and Minneapolis Fed President Kashkari may also join the dissenting camp.
Dovish camp: New York Fed President Williams is a "clear dove," stating that "the current policy stance is well positioned" and that there are "encouraging reasons to expect inflation has peaked and will decline over the next several quarters."
The most critical voice—Fed Chair Walsh: In last week’s congressional testimony, Walsh stated that the Fed would not tolerate “persistently high inflation,” while simultaneously characterizing AI-related costs as “one-time price pressures.” Natixis interpreted this remark as indicating “at least some willingness to ‘look through’ near-term inflationary effects and expect them to prove temporary”—the clearest dovish signal since Walsh took office.
Natixis concluded that although hawkish members continue to favor rate hikes, "more influential voices" within the committee appear inclined to wait—the softer inflation data in June has reduced the urgency for near-term policy rate adjustments.
Based on the above data and communication assessment, Natixis's base case is:
The July meeting held rates steady—although Logan may dissent, and Hamaker and Kashkari may join, the majority of the committee will support holding steady;
The policy statement was "essentially unchanged"—largely consistent with the simplified version from the June meeting;
The "extended pause" continues through 2026—Natixis believes the Federal Reserve will hold rates steady for the foreseeable future.
The core judgment of Natixis is based on the following logic:
Inflation outlook is “cautiously optimistic” — key inflation drivers in recent years (rapid wage growth and housing inflation) will ease over the next few quarters;
The labor market is stable but does not pose inflationary pressure — employment remains steady without providing additional upward pressure on inflation;
Although the disinflation process has faced some setbacks, the direction is clear — Natixis interprets June’s inflation data as “clearly signaling” that progress toward the 2% target continues.
Natixis noted that the Fed needs to "wait for clearer evidence that inflation pressures are driven by cyclical rather than exogenous factors," and expects inflation not to re-accelerate, making a "prolonged pause" the baseline scenario.
Natixis acknowledges that its inflation outlook faces two major upside risks:
Risk one: Escalation in Iran. Following the breakdown of the U.S.-Iran temporary peace agreement, Brentcrude oil has surpassed $100 per barrel. If Middle East tensions further escalate, energy prices could continue to rise, pushing up overall inflation and potentially transmitting it to core inflation, forcing the Fed to reconsider rate hikes.
Risk two: A new round of tariffs. The Trump administration plans to impose new tariffs of 10%-12.5% on 60 major trading partners. These tariffs will directly raise the prices of imported goods and may transmit through supply chains to broader price levels, exerting upward pressure on inflation.
Natixis noted that if inflation data comes in higher than expected or remains persistently elevated, Fed Chair Powell “may need to raise rates to preserve his credibility.” This places Powell in a delicate balancing act—fighting inflation while avoiding excessive tightening that could unnecessarily harm economic growth and the labor market.
Another scenario—若消费放缓，降息概率将上升
Natixis also presented another scenario: if consumer spending slows more than expected, the Fed’s next move might not be a rate hike, but a rate cut.
Natixis's baseline forecast is that consumption will gradually slow. If this assessment is correct, "the Fed can avoid raising rates in the near term." If the slowdown in consumption exceeds expectations, the likelihood of rate cuts will rise—but Natixis warns that this scenario is "unlikely to materialize before next year."
This perspective offers the market an important medium-term view: while current market focus is heavily centered on “when the Fed will raise rates,” Natixis’s analysis suggests that if economic data weakens further, the market narrative could shift from “rate hikes” to “rate cuts” by 2027—though this turning point has not yet arrived.
Natixis' outlook on Fed policy can be summarized as: the base case is a "prolonged pause"—holding rates steady in July and maintaining them through 2026, but tensions in Iran and new tariffs pose significant upside risks.
Natixis's core logic is based on a cautiously optimistic view of inflation—believing that the disinflation process, while uneven, has a clear direction, and that the labor market, while stable, does not exert inflationary pressure. This gives the Federal Reserve room to maintain interest rates unchanged, awaiting clearer evidence that inflationary pressures stem from cyclical rather than exogenous factors.
However, Natixis acknowledges that this outlook faces two major upside risks—escalation in the Middle East driving up energy prices, and new tariffs increasing import costs. If either risk materializes, Fed Chair Powell may “need to raise rates to preserve his credibility.”
For the market, this means that while the Fed's "extended pause" narrative remains the base case, its credibility continues to be tested by ongoing geopolitical and trade policy uncertainties.
The real focus of the July FOMC meeting is not on the interest rate decision itself (a hold is virtually certain), but on how Waugh balances the tension between “improving data” and “upside risks”—and how this balance will influence market pricing for the policy path in September and beyond.
(Daily chart of US Dollar Index, source: TradingView)
At 15:39 Beijing time on July 24, the US Dollar Index stood at 101.31.
According to CME's "FedWatch Tool," the probability that the Fed will hold rates steady in July is 65.3%, while the probability of a cumulative 25-basis-point hike is 34.7%. The probability that the Fed will hold rates steady by September is 17.6%, the probability of a cumulative 25-basis-point hike is 57%, and the probability of a cumulative 50-basis-point hike is 25.4%.
Economists Christopher Hodge and Selin Aker from Natixis noted in their latest FOMC outlook report that recent data has given the Federal Reserve some “breathing room,” and they expect the Fed to hold rates steady at its next meeting, with this “extended pause” potentially lasting until 2026.
The data has given the Federal Reserve some breathing room.
Natixis noted that the incremental data since the June FOMC meeting, while "limited," has overall been "dovish," providing data support for the Fed to maintain interest rates unchanged.
Labor market: The June employment report was “mixed but softer than previously.” Non-farm payrolls increased by only 57,000 jobs, far below the three-month average increase of 164,000. More concerning is the structural decline in labor force participation—previously, the drop in participation was primarily driven by older U.S. workers exiting the labor force amid a significant rise in asset prices; however, the June decline was concentrated among prime-age workers (25–54 years old). Natixis warned that if this trend continues, it could signal “frustration among America’s largest working-age group in their job search,” raising concerns about consumer prospects.
Inflation data: The overall CPI dropped 0.4% month-over-month in June, primarily driven by a sharp decline in energy prices during the temporary ceasefire between the U.S. and Iran. However, core CPI, which is more relevant for policy decisions, remained flat month-over-month, indicating that disinflationary pressures are still underway. Natixis estimates that components mapped from CPI and PPI to the Fed’s preferred inflation metric (the PCE deflator) suggest that the June PCE reading may fall below the Fed’s 2% target.
This combination—softer employment data and cooling inflation—provides strong data support for the Fed’s “extended pause.” Natixis emphasizes that while the June inflation data was “abnormally low” (significantly below consensus), its “signaling value is not abnormal”—the disinflation process continues to progress toward the 2% target.
Wash's statement is particularly crucial
Despite dovish data, the Federal Reserve officials' public communications have presented a mixed but overall hawkish stance.
Hawkish camp: Waller, Logan, Harker, and Kashkari have all expressed continued concerns about inflation. Dallas Fed President Logan is currently the only FOMC voting member publicly advocating for a rate hike. Natixis expects her to dissent at next week’s meeting, and Cleveland Fed President Harker and Minneapolis Fed President Kashkari may also join the dissenting camp.
Dovish camp: New York Fed President Williams is a "clear dove," stating that "the current policy stance is well positioned" and that there are "encouraging reasons to expect inflation has peaked and will decline over the next several quarters."
The most critical voice—Fed Chair Walsh: In last week’s congressional testimony, Walsh stated that the Fed would not tolerate “persistently high inflation,” while simultaneously characterizing AI-related costs as “one-time price pressures.” Natixis interpreted this remark as indicating “at least some willingness to ‘look through’ near-term inflationary effects and expect them to prove temporary”—the clearest dovish signal since Walsh took office.
Natixis concluded that although hawkish members continue to favor rate hikes, "more influential voices" within the committee appear inclined to wait—the softer inflation data in June has reduced the urgency for near-term policy rate adjustments.
Held steady in July, extending the pause until 2026
Based on the above data and communication assessment, Natixis's base case is:
The July meeting held rates steady—although Logan may dissent, and Hamaker and Kashkari may join, the majority of the committee will support holding steady;
The policy statement was "essentially unchanged"—largely consistent with the simplified version from the June meeting;
The "extended pause" continues through 2026—Natixis believes the Federal Reserve will hold rates steady for the foreseeable future.
The core judgment of Natixis is based on the following logic:
Inflation outlook is “cautiously optimistic” — key inflation drivers in recent years (rapid wage growth and housing inflation) will ease over the next few quarters;
The labor market is stable but does not pose inflationary pressure — employment remains steady without providing additional upward pressure on inflation;
Although the disinflation process has faced some setbacks, the direction is clear — Natixis interprets June’s inflation data as “clearly signaling” that progress toward the 2% target continues.
Natixis noted that the Fed needs to "wait for clearer evidence that inflation pressures are driven by cyclical rather than exogenous factors," and expects inflation not to re-accelerate, making a "prolonged pause" the baseline scenario.
The situation in Iran and tariffs are the biggest variables in the inflation outlook.
Natixis acknowledges that its inflation outlook faces two major upside risks:
Risk one: Escalation in Iran. Following the breakdown of the U.S.-Iran temporary peace agreement, Brentcrude oil has surpassed $100 per barrel. If Middle East tensions further escalate, energy prices could continue to rise, pushing up overall inflation and potentially transmitting it to core inflation, forcing the Fed to reconsider rate hikes.
Risk two: A new round of tariffs. The Trump administration plans to impose new tariffs of 10%-12.5% on 60 major trading partners. These tariffs will directly raise the prices of imported goods and may transmit through supply chains to broader price levels, exerting upward pressure on inflation.
Natixis noted that if inflation data comes in higher than expected or remains persistently elevated, Fed Chair Powell “may need to raise rates to preserve his credibility.” This places Powell in a delicate balancing act—fighting inflation while avoiding excessive tightening that could unnecessarily harm economic growth and the labor market.
Another scenario—若消费放缓，降息概率将上升
Natixis also presented another scenario: if consumer spending slows more than expected, the Fed’s next move might not be a rate hike, but a rate cut.
Natixis's baseline forecast is that consumption will gradually slow. If this assessment is correct, "the Fed can avoid raising rates in the near term." If the slowdown in consumption exceeds expectations, the likelihood of rate cuts will rise—but Natixis warns that this scenario is "unlikely to materialize before next year."
This perspective offers the market an important medium-term view: while current market focus is heavily centered on “when the Fed will raise rates,” Natixis’s analysis suggests that if economic data weakens further, the market narrative could shift from “rate hikes” to “rate cuts” by 2027—though this turning point has not yet arrived.
Summary: Natixis's "extended pause" assessment faces dual challenges from Iran and tariffs.
Natixis' outlook on Fed policy can be summarized as: the base case is a "prolonged pause"—holding rates steady in July and maintaining them through 2026, but tensions in Iran and new tariffs pose significant upside risks.
Natixis's core logic is based on a cautiously optimistic view of inflation—believing that the disinflation process, while uneven, has a clear direction, and that the labor market, while stable, does not exert inflationary pressure. This gives the Federal Reserve room to maintain interest rates unchanged, awaiting clearer evidence that inflationary pressures stem from cyclical rather than exogenous factors.
However, Natixis acknowledges that this outlook faces two major upside risks—escalation in the Middle East driving up energy prices, and new tariffs increasing import costs. If either risk materializes, Fed Chair Powell may “need to raise rates to preserve his credibility.”
For the market, this means that while the Fed's "extended pause" narrative remains the base case, its credibility continues to be tested by ongoing geopolitical and trade policy uncertainties.
The real focus of the July FOMC meeting is not on the interest rate decision itself (a hold is virtually certain), but on how Waugh balances the tension between “improving data” and “upside risks”—and how this balance will influence market pricing for the policy path in September and beyond.
(Daily chart of US Dollar Index, source: TradingView)
At 15:39 Beijing time on July 24, the US Dollar Index stood at 101.31.