Deutsche Bank's Tarman: Fed's Next Move Unlikely to Be a Rate Hike

The Quick Take

• Deutsche Bank strategist Tarman says the Fed's next policy action is more likely a cut than a hike, signaling a hawkish ceiling.
• The assessment implies the Fed has reached the end of its rate-hiking cycle, limiting further downside pressure on risk assets.
• SPY and broader US equity benchmarks stand to benefit if the market prices in rate-cut probability with greater confidence.

Deutsche Bank's analyst Tarman delivered a significant forward-guidance signal by stating the Federal Reserve's next policy move is unlikely to be a rate hike, a view that effectively marks a ceiling on the current tightening cycle. This assessment carries weight given Deutsche Bank's prominence in macroeconomic research and rate-cycle forecasting. The Fed has held rates at elevated levels to combat inflation, but the growing consensus among major bank economists that the hiking cycle has peaked represents a meaningful pivot in market expectations for the months ahead.

From a market implication standpoint, this view supports risk asset valuations across US equity markets, particularly in rate-sensitive sectors such as technology, real estate, and utilities. When the market believes rate hikes are behind it, longer-duration assets reprice higher. SPY, as the primary S&P 500 proxy, benefits from lower discount rates on future earnings. The dollar may weaken modestly on rate-cut probability pricing, which would provide secondary relief to emerging market assets and commodities priced in USD, including gold and industrial metals.

The key forward signal to watch is the Fed's next FOMC meeting statement and Chair Powell's press conference language around whether the bar for resuming hikes has risen. If inflation data continues trending toward the 2% target, the probability of rate cuts in late 2026 increases and market positioning will shift accordingly. The macro variable that could disrupt this thesis is a re-acceleration of core CPI, particularly shelter and services inflation, which could force the Fed to maintain a hawkish stance longer than Deutsche Bank's base case projects.

Synthesized from 1 source.