From the Desk

Markets are a powerful real-time laboratory. As new information arrives, markets convert it into price effects. This week, we saw such a case study. A headline hit that President Donald Trump was planning to fire the chairman of the U.S. Federal Reserve and had already shared a letter with members of Congress to that effect. Markets reacted, and about an hour later the president told reporters that none of this was in the works. However, in that one hour gap, markets sent a clear message as rates spiked and the dollar weakened.

Bond markets in particular worry that lack of Fed independence could destabilize inflation expectations. The 30-year Treasury rate, which is very sensitive to inflation, spiked 10 basis points (bps). And the dollar fell 1.2% against major currencies. Betting markets had also increased the odds of the Fed chairman losing his job by 20%. So, presuming that the market moves were in line with those one-in-five odds, a rough estimate suggests an actual firing would have sent 30-year rates up 50 bps and the dollar down 6%.

However, let’s pull back to see the bigger picture. The president wants lower rates, but the Fed only has a direct role in setting short rates. Further out on the yield curve, the market decides for itself. For example, when the Fed lowered rates by 100 bps last year from September through December, rates at the 10- and 30-year went up 90 bps. They increased because markets thought the Fed was moving too quickly while inflation was still high.

The one area where lower short rates help is that a large slice of U.S. government debt is funded using short-term financing, which is rolled over every 3–6 months. But if bond traders think lower rates are going to spark inflation, then households will see higher mortgage rates and corporate America will pay more for mid- to long-term debt. Overall, it is hard to control the bond market. It is agnostic and makes its own decisions.

Sources: Bloomberg, Financial Times, 2025.

At the start of 2025, there was a widespread view that for all of President Trump’s promises to prioritize fossil fuels, two factors – surging power demand from new data centers, and an array of new solar, wind and battery projects in Republican-held districts – would ensure that some form of tax support for renewables would remain. Last year, wind, solar and battery storage provided more than 90% of all new generating capacity in the U.S.

Following last minute revisions to the One Big Beautiful Bill Act, a clearer picture is emerging. The final version of the bill accelerates the phaseout of Inflation Reduction Act tax credits for solar and wind, faster than many expected. To remain eligible for credits, projects must meet tight timelines for beginning construction and heed new restrictions related to Foreign Entity of Concern (FEOC) conditions on supply chains. Nuclear, geothermal and hydro power projects retain access to the previously existing credits. 

Several estimates project a significant drop in future solar and wind projects due to the legislation. This coincides with the growing demand in power from AI and data centers. This year’s investment in data centers in the U.S. is set to be double that of 2023; analysts’ forecasts for electricity demand growth from data centers range from 10%–20% per year through 2030.

An important decision is still to come. Following the bill's passage, President Trump issued an executive order requiring the Treasury secretary to issue guidance within 45 days on both construction timing and FEOC conditions, “to strictly enforce the termination of the clean electricity production and investment tax credits.” 

There is $222 billion of outstanding investment in the U.S. in wind, solar and storage facilities that have not yet broken ground. The stringency of the Treasury guidance will be a key factor in determining which projects can move forward.

Sources: Bloomberg, U.S. Energy Information Administration, New York Times, Rhodium Group, Wood Mackenzie, 2025. 

Despite ongoing debates regarding the energy transition in the U.S., certain fossil-fuel based infrastructure is becoming less competitive relative to newer technologies, with generation resources shifting from firm dispatchable sources to intermittent renewable sources like solar and wind. Gaps in firm dispatch provide a growing opportunity for energy storage solutions, which can be recharged during low demand periods and deployed during peak demand to maintain price and grid stability. Growing demand for energy storage solutions could result in new opportunities for institutional investment in the infrastructure space.

Battery energy storage systems (BESS) are the predominant form of renewable energy storage deployed throughout the U.S., with the installed base growing by more than 28-times over the last eight years due to increasing solar and wind penetration and decreasing costs for lithium-ion batteries. BESS grew faster in this period than alternatives such as pumped hydro and compressed air storage due to its modular scalability, site agnosticism, ease of deployment and economies of scale via the growing electric vehicle market, in addition to policy support via investment tax credits. 

We are increasingly seeing opportunities for BESS project investment in the private infrastructure market. In the investment grade private placement market, BESS projects have typically been financed at the portfolio level, with select assets raising capital at the project level. BESS projects can potentially provide stable long-term cash flow via availability or capacity-based contracts with creditworthy utility counterparties, with arbitrage allowing for incremental revenues. Key risk factors for BESS projects include managing battery degradation and arbitrage revenue exposure. Although the One Big Beautiful Bill Act has potentially significant impact on future BESS project developments, we expect BESS will continue to feature strongly in the private infrastructure market.

Sources: U.S. Energy Information Administration, Energy Storage News, 2025. 

The U.S. Consumer Price Index (CPI) increased by 0.3% month-over-month in June, and tariff-related impacts were readily apparent. Certain line items in categories like household furnishings and supplies and recreation commodities had their largest monthly increases since the inflationary spike in 2021–2022, while new and used car prices have been stable after demand spiked in Q1 2025 to get ahead of potential tariffs. Elsewhere, there have been some disinflationary pressures that have counteracted the price pressures from tariffs. Firstly, shelter has continued to decelerate and now stands at 3.8% year-over-year, which is the lowest since November 2021. Additionally, there has been continued weakness in discretionary services like airfares and hotels.

The Fed’s Beige Book released this week added additional color on how firms have been handling tariffs and their intentions in the coming months. As is evident in CPI data, many firms have already been raising prices, but some have held off due to hesitant behavior from consumers. Looking ahead, respondents broadly saw price pressures persisting in coming months, which means we are likely months away from seeing the full extent of tariff-related inflation. 

Sources: Bureau of Labor Statistics (BLS), U.S. Federal Reserve, 2025.