The Federal Open Market Committee (FOMC) on Wednesday announced a 25-basis point cut to the federal funds rate, bringing its key policy rate to a range of 4.0–4.25%. While this move was largely expected, the FOMC’s new dot plot of rate expectations going forward was less so, with a narrow majority signaling the need for two additional 25-basis point cuts before year end as well as one each in 2026 and 2027 as it moves toward a neutral policy setting.

The FOMC’s latest Summary of Economic Projections indicated that the median committee member had increased expectations for economic growth and inflation over the forecast period and decreased expectations for the unemployment rate. While these shifts may seem contradictory to the easing trajectory, they highlight the uncertain path forward as the committee seeks to balance upside risks to inflation and unemployment.

• Inflation. Federal Reserve Chair Powell highlighted that goods inflation has increased due to tariffs and has added to core PCE inflation, though moderating service sector inflation has served as an offset. Notably, Powell sounded more confident that tariffs were likely to have a one-time impact on inflation; he noted, however, that while firms to date have absorbed the bulk of the tariffs, they are likely to pass those costs on to consumers eventually.
• Labor market. Powell mentioned the labor market sits in a “curious balance,” with both demand and supply softening largely due to changes to immigration policies and, to a lesser extent, tariffs. Though the labor market persists in its current low-hire/low-fire equilibrium, there are upside risks if layoffs pick up. Higher youth and minority unemployment are signs that labor markets are weakening.

Commenting on the range of policy views suggested by the dot plot, Powell remarked that such divisions were not surprising given the “unusual challenges” facing the economy. “There are no risk-free paths now,” he said. “It’s not incredibly obvious what to do.”¹

After struggling with both supply and demand challenges amid Federal Reserve rate hikes in 2022–23, the municipal bond market came storming back with in 2024 with record new issuance of $533 billion alongside solid demand. Meanwhile, issuance in 2025 is on track to be even stronger, with $387 billion coming to market in the first eight months of the year.¹

Ample new-issue muni bond supply is good news for investment managers, in our view. Primary offerings can be an effective and efficient way for portfolio managers to build scale and enhance diversification, potentially providing managers access to large blocks of new bonds at prices that can be superior to similar secondary market bonds.

The primary market is not limited to rated bonds; in fact, 34% of the 200,000 municipal bonds issued from 1998 to 2017—or 14% of the $3.7 trillion in par value—did not obtain a credit rating from a nationally recognized statistical rating organization.²  

We don’t believe the lack of a rating should be interpreted as a reflection of a bond’s quality. Many unrated issues are smaller and less liquid than investment grade deals, and issuers often forgo ratings to avoid the associated expenses. To compensate for their greater complexity and information risk, however, unrated bonds typically pay investors a higher yield compared to rated issuers of similar quality. It’s been our experience that skilled credit managers may find favorable risk/return profiles within this opportunity set.