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The Federal Reserve left its benchmark interest rate at 4.25-4.50% on Wednesday, marking the fourth consecutive meeting without a change. A t the press conference following the decision, Fed Chair Jerome Powell noted that the central bank was not in a rush to cut and was "well positioned to respond in a timely way to potential economic developments"—including evolving news over the course of US trade policy.

The Swiss National Bank (SNB), by contrast, kept the global easing cycle on track, with its sixth cut in succession, taking its policy rate to zero. The SNB has been responding to falling inflation, a rise in the Swiss franc, and uncertainty over US trade policy.

We continue to expect that the Fed will resume policy easing later this year and believe investors should put excess liquidity to work as cash’s underperformance comes into focus amid falling rates.

Softening US economic activity should allow the Fed to reduce rates later this year. Although the Fed left rates on hold this week, the central bank scaled back its forecast for economic growth to 1.4% this year, down from 1.7% at its prior forecast in March. It also expects unemployment to rise to 4.5%, from 4.4% in the prior projection. While the Fed also sees higher inflation, these projections reinforce our view that US rates will start coming down later in the year as the economy cools. This was also reflected in the dot plot, which charts the rate forecasts of top officials. The median dot remained at 3.9%, compatible with two 25-basis-point reductions by the end of the year—though more officials expected rates to remain on hold than before.

We also see other signs of economic cooling in the US. Retail sales in May fell 0.9% month over month, below consensus estimates and lower than the (reduced) 0.1% decline in April. This marks the largest decrease in four months, suggesting caution in consumer spending. Industrial production in May also fell for the second time in the last three months, while a separate survey showed sentiment among homebuilders slid to the lowest point in 2.5 years. While we see risks of a later start to cuts, our base case remains for the Fed to resume easing in September with the labor market hinting at further softening ahead and as the economic impact of tariffs becomes more apparent.

Other central banks are still cutting rates.
We expect the SNB policy rate to remain at 0% through year-end, but downside risks could trigger further action. The likelihood of rates being pushed into negative territory would increase if global trade tensions escalate and appreciation pressure on the Swiss franc intensifies.

We see further rate cuts elsewhere. While comments from ECB President Christine Lagarde hinted at a pause in its easing cycle, we expect another cut in July as a trade agreement with the US remains elusive. While the Bank of England is expected to stay put at its policy meeting today, a cut is likely warranted in August given soft labor data. Also, UK inflation in May moderated. In Asia, we expect central banks to cut one to two times in the second half of this year amid slower inflation and softer trade data.

Cash has historically underperformed over the longer term. The elevated uncertainty over tariffs and escalating geopolitical conflicts may have increased the temptation for some investors to hide in cash in the near term, but its long-term underperformance compared to other asset classes is a structural phenomenon. The S&P 500 is back in positive territory this year despite the sharp drawdown post-“Liberation Day,” while Treasury yield volatility has stabilized in recent weeks. History also shows that the impact of geopolitical events on equity markets has tended to be short-lived.

So we believe taking on manageable levels of risk with excess cash would improve return potential and combat the corrosive effects of inflation. We recommend phasing into global equities amid near-term volatility, and believe high grade and investment grade bonds offer attractive risk-reward and can help hedge against downturns. Investors able to manage the associated risks and complexity of structured strategies can also consider those that can generate yield.