Both the equity markets and long-end Treasury yields moved lower last week. The highlight event was the June FOMC meeting. As expected, the Fed made no move to cut rates. However, the most significant development came from the updated dot plot, which offers insight into policymakers' projections.
While the median estimate still reflects two rate cuts this year, there were some notable revisions to the Fed’s economic outlook. The 2025 GDP forecast was lowered by 0.3% to 1.4%, inflation was revised up by 0.3% to 3.0%, and the unemployment rate ticked higher by 0.1% to 4.5%. None of these revisions are moving in the direction markets want to see, but given the current backdrop of uncertainty around tariffs and rising geopolitical risk, they’re not surprising.
Speaking of geopolitical tensions, events escalated sharply in the Middle East with the U.S. reportedly bombing three nuclear facilities in Iran. Historically, such actions have prompted retaliation from Iran—we’ll be watching closely to see if this time is different. Traditionally, rising global conflict pushes equities lower and bonds higher as investors seek safety. But could this time break that pattern? It all hinges on how markets interpret the potential fallout—or clarity—that may emerge in the region.
On the economic front, the latest retail sales report was mixed. While the headline number came in below expectations, the control group—which directly feeds into GDP—remained solid, offering a silver lining.
Looking ahead, we’ll be paying close attention to remarks from various Fed speakers throughout the week. Key data releases include:
Consumer Confidence on Tuesday
Building Permits and Housing Starts on Wednesday
Jobless Claims on Thursday
And on Friday, the PCE Deflator, the Fed’s preferred inflation gauge
Economists have become fairly adept at forecasting the PCE using CPI and PPI data, so we’re not anticipating any major surprises. Current expectations are for the headline PCE to tick up 0.2% to 2.3%.
We’ll be breaking all of this down in more detail on HPK Friday Live, streaming on Facebook at 12:30 PM.
Disclosures:
The opinions voiced in this material are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Economic forecasts presented may not develop as predicted.