Major stablecoin progress

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The stablecoin industry saw a major breakthrough this month as the U.S. Senate passed the GENIUS Act, the first comprehensive federal legislation for dollar-backed digital tokens. The bill requires 1:1 reserve backing with U.S. dollars or short-term Treasuries, mandates monthly disclosures and annual audits, and places issuers under anti-money-laundering and consumer protection rules. The regulatory clarity has spurred market optimism, pushing the total stablecoin market cap to a record $251.7 billion and sending shares of Circle (USDC’s issuer) up over 30% to a market value of over $40 billion. Coinbase also rallied on the news and launched a new stablecoin payments platform. Meanwhile, Société Générale is expanding its stablecoin offerings in Europe with a new dollar-backed token under MiCA rules. In the U.S., Walmart and Amazon are reportedly evaluating ways to integrate or issue stablecoins to streamline payments and reduce reliance on traditional banking rails, highlighting the growing interest from major corporates as regulatory uncertainty lifts.

• The GENIUS Act was a very important milestone for the broader adoption of stablecoins
• Stablecoins have the opportunity to replace existing payment rails with cheaper 24/7 options
• However, current adoption is infantile, and the winners and losers are too early to call
• The market has bid up recently IPO’d Circle (USDC), which seems a bit premature given the relatively low barriers to entry in developing competitive systems
• As an example, Walmart and Amazon have both been reported to be working on their own stablecoin infrastructure
• The likely winners will come down to several important factors: AML/KYC compliant systems, fees, speed, and the ability to freely use tokens across platforms
• More specifically, if Amazon were to develop a stablecoin that can only be used on Amazon, it will likely have limited adoption
• The key is for stablecoins to be as easily and widely usable as US dollars are now via Visa and Mastercard
• The ultimate beneficiaries will be the networks on which the stablecoins operate, e.g., Ethereum, Solana, etc, in the case of Circle (USDC)

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Fed not ready to cut, yet

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The Federal Reserve kept its benchmark interest rate steady at 4.25%–4.50% during the June 17–18 meeting, marking the fourth consecutive pause, as policymakers weighed a mix of resilient economic growth and persistent inflation pressures. The updated "dot plot" forecasts two possible rate cuts this year, though opinions remain split—several officials see fewer or no reductions in 2025. Chair Powell emphasized the need for caution, citing rising inflation expectations due to tariffs and geopolitical tensions, while acknowledging the labor market’s relative strength. At the same time, Governor Waller signaled openness to a July rate cut, arguing that recent tariff shocks appear transitory. Overall, the Fed adopted a "wait-and-see" stance, balancing inflation risks against the potential need to support growth with easing measures later this year.

• Despite political pressure from the Trump administration, the Fed has refused to lower interest rates
• Although inflation seems to have come close to its target, the Fed continues to be concerned about tariffs and their impact on future inflation
• The Fed was also very late in raising interest rates in 2022, with the now-famous “transitory inflation” observation
• The market has been projecting cuts for some time now, with the Fed running the same risk of being late to cut
• On the contrary side of potential tariff inflation is the lack of trade deals leading to a slower economy

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Trade talks take back seat

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Trade negotiations between the U.S. and key partners, Europe, Japan, and China, have stalled as geopolitical focus shifts to the escalating Iran–Israel conflict. Talks with the EU remain deadlocked ahead of a July 9 deadline that could trigger 50% tariffs, with Brussels divided over how far to go to avoid them. Japan’s negotiators have described discussions as “in a fog,” with agricultural sensitivities and upcoming elections slowing progress. Meanwhile, U.S./China talks have produced only a vague framework, leaving core disputes over tech and security unresolved. With diplomatic resources diverted to the Middle East and energy market risks rising, trade diplomacy is on pause. The result is mounting uncertainty for global markets already wary of inflation and supply chain instability.

• The escalation of the conflict between Israel and Iran has created a distraction for trade talks
• The longer the trade talks last, the more potential economic damage they could bring
• If we end up in a prolonged period without a resolution, it could stall economic activity as companies continue to be stuck in uncertainty
• Trump has previously used trade as a way to solve conflict, as was his declaration in the earlier India/Pakistan conflict
• However, the current situation is different and may serve as an excuse if the economy suffers

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