Welcome to Thoughts on the Market. I'm Michael Zezes, head of Public Policy and Municipal Strategy for Morgan Stanley.

Along with my colleagues bringing you a variety of perspectives, I'll be talking about the intersection between US public policy and

financial markets. It's Wednesday, July 24th at 9 a.m. Eastern. If you are a Bond

investor, then you're likely focused on the upcoming Fed meeting on July 31st.

The debate is about whether or not they will cut interest rates and if so, whether they cut 25

basis points or go for a bigger impact with a 50 basis points cut.

While it might seem counterintuitive, given strong GDP and labor data, our economics team thinks they're going to go for the full 50 basis points.

Why? In our view, they have both the motive and the opportunity to do so and that's at least partially

powered by geopolitical concerns namely the outlook for US trade policy. Let's start

first with the motive. A number of forward-looking economic indicators are

weakening. New order growth in manufacturing has

slowed considerably as of capital expenditures. This is likely a reflection of

anxiety among businesses reflected in the feds beige book where businesses

references to tariff risks and economic

uncertainty has risen considerably this year. And unfortunately, the US Trade

Policy Outlook isn't doing much to counter this narrative. It's true the G20

meeting between the US and China

paused tariff escalation while both sides restart talks but those talks have been

slow to progress in a way that would make businesses confident that tariff

reductions are coming soon. In particular, the U.S. continues to advocate for a return to what it says was agreed upon before

talks broke down in early May, something China refuses to accept.

Said more simply, the two sides don't appear to have made any progress towards resolving the very tricky fundamental disagreements that would lead to a deal and possible tariff reduction.

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