Quarterly Letter to Members | |
A Pause in the Fog
By KeyBank Institutional Advisors
The Federal Reserve held its benchmark interest rate steady at 4.25% to 4.50%, extending its pause into a fourth consecutive meeting in 2025. But beneath the surface of the status quo lies a more complicated story – one marked by slower growth, persistent inflation, and a policy path growing harder to read.
Today’s updated Summary of Economic Projections (“SEP”) still shows two rate cuts penciled in for 2025, maintaining the median outlook from March. But that apparent consistency masks growing internal division. A rising number of Fed participants now foresee fewer or even zero cuts this year. The once-clear road to easing has become a narrowing trail, surrounded by geopolitical uncertainty and stubborn price pressures.
Powell’s Message: Data Will Decide In his post-meeting press conference, Chair Powell emphasized a familiar refrain: patience, flexibility, and vigilance. He acknowledged the Fed’s progress on inflation but stopped well short of declaring victory. “We need greater confidence that inflation is sustainably moving toward 2%,” he said, reiterating that policy decisions will remain data dependent, not calendar driven.
When pressed on whether two cuts remain realistic this year, Powell avoided commitment, noting that “the risks are two-sided.” He pointed to recent economic crosscurrents: softening consumer spending, improving supply chains, but also tariff-related price pressures and labor market resilience. The implication was clear: the Fed isn’t yet convinced it can cut without consequence.
Slower Growth, Stubborn Inflation
The Fed revised its 2025 GDP growth estimate downward to 1.4%, a notable slowdown from the prior 1.7%. At the same time, core PCE inflation remains above target, projected at 3.0% by year-end. The labor market is expected to soften modestly, with unemployment rising to 4.5%, but remains relatively stable by historical standards.
Taken together, the projections paint a portrait of a slow-moving economy with sticky inflation – a mix that justifies the Fed’s reluctance to ease prematurely. It also underscores the challenge of achieving a so-called “soft landing” without leaving policy too tight for too long.
Markets Watch the Dots and the Silence Between Them
While the SEP remains technically unchanged, Powell’s caution and the widening range of views within the Committee are resonating with markets. Treasury yields nudged higher on the day, and the futures markets trimmed their odds of a September rate cut. What markets once viewed as a near certainty is now a question of timing, conditionality, and inflation’s unpredictable path.
What It Means for Investors
The June announcement reinforces a single theme: the Fed is in no rush to cut, and investors shouldn’t rush to reposition.
The “higher-for-longer” stance strengthens. Short-term debt and U.S. Treasury Bills remain attractive for income and flexibility. The yield curve could stay flat or even invert further. Consider barbell strategies that balance short-term liquidity with selective long-term exposure. With a rate relief delayed, valuation pressure persists in the equity market. Growth in stocks may wobble; defensive sectors gain appeal. Stick to quality. Prolonged high rates challenge lower-rated corporate debt, especially near refinancing windows. Cash yields are still compelling. Liquid alternatives and ultra-short duration vehicles can help manage volatility while preserving optionality.
The Fed hasn’t ruled out easing, but it’s made it clear it will only do so with conviction, not hope. In this environment, discipline, diversification, and patience matter more than ever.
Still Walking Through the Fog
The June decision offers no surprise in substance, but the context around it has shifted. The Fed remains in a holding pattern, but the grip is tighter and the room to maneuver narrower. With inflation not yet yielding and growth decelerating, the Fed’s margin for error has grown thin.
The pause continues. But so does the fog.
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The Key Wealth Institute is comprised of a collection of financial professionals representing Key entities including Key Private Bank, KeyBank Institutional Advisors, and Key Investment Services. Any opinions, projections, or recommendations contained herein are subject to change without notice and are not intended as individual investment advice.
This material is presented for informational purposes only and should not be construed as individual tax or financial advice. Bank and trust products are provided by KeyBank National Association (KeyBank), Member FDIC and Equal Housing Lender. Key Private Bank and KeyBank Institutional Advisors
are part of KeyBank. Investment products, brokerage and investment advisory services are offered through Key Investment Services LLC (KIS), member FINRA/SIPC and SEC registered investment advisor. Insurance products are offered through KeyCorp Insurance Agency USA, Inc. (KIA). KIS and KIA are affiliated with KeyBank.
KeyBank and its affiliates do not provide legal advice. Individuals should consult their personal tax advisor before making any tax-related investment decisions.
© 2024 KeyCorp. 230720-2172668-1268483519
INVESTMENT PRODUCTS ARE: NOT FDIC INSURED. NOT BANK GUARANTEED. MAY LOSE VALUE. NOT A DEPOSIT. NOT INSURED BY ANY FEDERAL OR STATE GOVERNMENT AGENCY
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Series I Recap
The month opened with a $807,640,578 share balance and closed with a balance of $773,115,105. The seven-day effective yield ended the month at 4.30%. The monthly seven-day average yield in June was 4.26%. Average maturity ended the month at 25 days.
As of June 30, 2025, the Series I portfolio had 16% of its portfolio assets allocated to overnight investments/cash, corporate securities made up 7% of the assets, Commercial Paper represented 25%, CDs represented 8%, and Treasury & Agency represented 44%.
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Series II Recap
The month opened with a $114,904,470 share balance and closed with a balance of $115,308,367. The thirty-day SEC yield ended the month at 4.30%.
At June 30, 2025, the Series II portfolio had 2% of its portfolio assets allocated to overnight investments/cash, corporate securities made up 25% of the assets, Commercial Paper represented 18%, CDs represented 15%, and Treasury & Agency represented 40%.
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Comparisons
On June 30th, 2025, the S&P AAA & AA Rated GIP Tax 30 Day Yield Index was 4.29%, the Series I Pool's 7-day SEC effective rate was 4.30%, and the Series II Pool’s 30-day SEC effective rate was 4.30%. All Pool rates are quoted net of fees and expenses.
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Cheyenne Heindel - President
Matanuska-Susitna Borough
Seat Vacant
Mason Villarma
City & Borough of Wrangell
Kris Erchinger
City of Whittier
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Angie Flick - Vice President
City & Borough of Juneau
Jody Tow - Treasurer
Petersburg Borough
Brennan Hickok
APRA
Nils Andreassen - Executive Director
Alaska Municipal League
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AMLIP Membership
If any of your local school districts or municipal agencies are interested in enrolling, please reach out to info@amlip.org.
90 Members Representing 240 Total Accounts
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Adak, City of
AIDEA
Akutan, City of
Alaska Association of Municipal Clerks
Alaska Govt Finance Officers Association
Alaska Municipal League
Alaska Municipal Management Association
Aleknagik, City of
Aleutians East Borough
AML/JIA
Anderson, City of
Angoon, City of
Annette Island School District
Atka, City of
Atqasuk, City of
Bethel, City of
Brevig Mission, City of
Bristol Bay Borough
Chevak, City of
Chuathbaluk, City of
Cold Bay, City of
Cordova, City of
Delta Junction, City of
Denali Borough
Dillingham, City of
Eagle, City of
Eek, City of
Egegik, City of
Elim, City of
Fairbanks North Star Borough
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Fairbanks, City of
False Pass, City of
Fort Yukon, City of
Galena, City of
Gustavus, City of
Haines, City and Borough
Homer, City of
Hoonah, City of
Huslia, City of
Juneau, City and Borough
Kachemak, City of
Kake City School District
Kenai Peninsula Borough
Kenai, City of
Ketchikan Gateway Borough
King Cove, City of
Kodiak Island Borough
Kodiak, City of
Kotzebue, City of
Koyuk, City of
Manakotak, City of
Marshall, City of
Matanuska-Susitna Borough
McGrath, City of
Mekoryuk, City of
Mekoryuk, Village of
New Stuyahok, City of
Nome, City of
North Pole, City of
Northwest Arctic Borough
Nulato, City of
Old Harbor, City of
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Nulato, City of
Old Harbor, City of
Palmer, City of
Pelican City School District
Pelican, City of
Petersburg School District
Petersburg Borough
Pilot Station, City of
Pribilof School District
Quinhagak, City of
Sand Point, City of
Selawik, City of
Seldovia, City of
Seward, City of
Sitka, City and Borough
Soldotna, City of
Southwest Alaska Municipal Conference
St. Paul, City of
Tenakee Springs, City of
Toksook Bay
Unalakleet, City of
Unalaska, City of
Upper Kalskag, City of
Utqiagvik, City of
Wasilla, City of
Whale Pass, City of
Whittier, City of
Wrangell School District
Wrangell, City and Borough
Yakutat, City and Borough
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Interested in enrolling one of your municipal agencies or school districts?
Contact us at info@amlip.org!
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Account information:
Brian Crosby
Vice President and Sr. Relationship Manager
216-689-5190
brian_crosby@keybank.com
Kris Nedwick
Vice President and Sr. Relationship Manager
907-564-0409
kris_nedwick@keybank.com
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Investment Related Questions:
Blake Phillips
Director of Institutional Solutions
907-646-3505
blake@apcm.net
Lindsey Cashman
Client Relationship Manager
(907) 646-3532
lindsey@apcm.net
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