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Monetary Policy (Global):• The Fed held rates steady in Q2 amid healthylabor markets and tariff-driven inflation concerns.• The “dot plot” still signals 50 bps in cuts for 2025but views have diverged as seven members arecalling for no cuts in 2025.• Other major central banks (except Japan)continued cutting rates as global inflation cools,though tariffs pose inflation risks and cloud theoutlook.Economic Growth (Global):• U.S. growth turned negative in early 2025, drivenby a historically high trade deficit and weakerconsumer spending. Strong inventory build andfixed investment helped offset this weakness.• The drag to GDP from net exports is expected toreverse, but declining consumer confidence maydampen spending and investment.• Escalating trade and geopolitical tensions createthe potential for slower global growth.Inflation (U.S.): • Inflation has moved closer to the Fed’s 2% target,but tariff-driven price pressures may emerge asbusinesses deplete pre-tariff inventories.• Fed Chair Powell said that he does expect tariffsto impact inflation but that the size, duration, andtime of tariff effects are highly uncertain.Financial Conditions (U.S.):• Financial conditions swung sharply during thequarter as the tariff rollout caused equities to selloff, credit spreads to widen, and heightenedTreasury volatility.• The announcement of tariff pauses sparked a risk-on trade resulting in equities near record highsand credit spreads tightening beyond long-runaverages.• The evolving fiscal landscape and persistentuncertainty may lead to tightening financialconditions over the next 6-12 months.Consumer Spending (U.S.): • Consumer sentiment remains subdued due toexpectations of higher prices, weaker labormarkets, and tepid growth. Sentiment hasimproved slightly since April amid tariff negotiationprogress but remains low.• A sharp labor market downturn remains thebiggest threat to consumer spending.• Tariff-driven inflation increases present additionalrisks such as slower real wage growth andreduced spending.Labor Markets (U.S.):• The labor market remains healthy, though earlysigns of cooling are emerging, particularly in risingjobless claims.• Monthly job gains have slowed but still matchlabor force growth. Slower population growth maylower the job creation rate needed to maintainstable unemployment.• With hiring and quits rates low, any acceleration inlayoffs may result in job seekers remainingunemployed for longer.Factors to Considerfor 6-12 Months Stance Unfavorable to Risk Assets Stance Favorable to Risk Assets Current outlook Outlook one quarter agoNegativeSlightly NegativeNeutralSlightly PositivePositiveStatements and opinions expressed about the next 6-12 months were developed based on our independent research with information obtained from Bloomberg Finance L.P. and FactSet. The views expressed within this material constitute the perspective and judgment of PFM Asset Management at the time of distribution (6/30/2025) and are subject to change. Information is obtained from sources generally believed to be reliable and available to the public; however, PFM Asset Management cannot guarantee its accuracy, completeness, or suitability.For the Quarter Ended June 30, 2025Market UpdatePFM Asset Management | pfmam.comCITY OF REDWOOD CITY247.A. - Page 30 of 6340