Macro

The Federal Reserve maintained its target interest rate at 3.50%-3.75% in June 2026, despite May's Consumer Price Index (CPI) rising to a three-year high of 4.2%. Futures markets predict the rate will reach 4% by year-end with no anticipated cuts, setting up the July FOMC meeting as a critical next test.

Late-stage mortgage delinquencies rose 18.6% year-on-year in December, driven by persistent housing affordability challenges, according to VantageScore. With $13.07 trillion in outstanding mortgages and rising costs, delinquency rates are increasing faster than other consumer credit types, signaling stress among homeowners. The trend may pressure credit scores and lending risk, highlighting broader market vulnerability despite still-low overall delinquency levels compared to the 2008 crisis.

Gas prices have risen above $4 per gallon nationally, with diesel over $5, as renewed U.S.-Iran conflict drives crude oil above $80 per barrel and Brent above $88. Experts cite multiple factors beyond geopolitical tensions, including Ukrainian attacks on Russian refineries and seasonal demand shifts. Patrick De Haan of GasBuddy warns the national average could reach $4.50 or approach $5 in a worst case. Price declines are slow due to refining costs and distribution disruptions, following the pattern that pump prices 'rise like a rocket and fall like a feather.' Federal measures include EPA waivers for E15 and E10 fuel sales, and the Trump administration released 172 million barrels from the Strategic Petroleum Reserve, which has fallen below Biden-era lows. Some states have implemented fuel tax holidays.

Persistent high prices across food, gas, and leisure activities continue to strain US consumers, with costs remaining elevated above pre-pandemic levels and further pressured by the conflict with Iran. A typical grocery basket was 41% higher in July than in 2019, with coffee prices more than doubling and beef surging. Dining out is costly: cold brew averages $5.62, burgers $14.71, and beer $6.60. Movie tickets hit $13.48, domestic airfares rose to $367, and international flights to $878. Car ownership is pricier, with average new vehicle payments at $808 per month and transaction prices near $49,758, driving more consumers toward 84-month loans.

Mortgage rates rose for the fifth consecutive week, with the 30-year fixed rate climbing eight basis points to 6.46% for the week ending Wednesday, the highest since Sept. 4, according to Freddie Mac. The 15-year loan edged up two basis points to 5.77%. The increases, driven by market volatility tied to President Trump's comments on the Middle East war, have dampened spring home buying. The Mortgage Bankers Association reported overall loan applications fell over 10%, with refinances dropping 17% and down over 40% from last month. Purchase applications dipped only 3%, as a buyer's market in some areas offsets higher rates. New listings jumped over 20% from February to March, but economists caution that March's momentum may falter if economic uncertainty persists.

U.S. annual inflation hit 4.2% in May 2026, the highest since April 2023, driven by a 23.5% surge in energy prices amid the ongoing Iran conflict that began in late February. The war has closed the Strait of Hormuz, disrupting global oil transit and pushing gasoline prices up over 30%. Markets now see a higher chance the Federal Reserve will hold or raise interest rates, and that crude oil may reach a new all-time high. The next key data point is the June CPI report, due July 14, 2026.

The Federal Reserve held interest rates steady at 3.50%-3.75% during its June 16-17, 2026 meeting, but the dot plot revealed a dramatic hawkish pivot: nine of eighteen officials now project at least one 25-basis-point hike before year-end, with six expecting two or more, reversing March's implied cuts. The median year-end rate projection rose to 3.8% from 3.4%, and the median PCE inflation forecast surged to 3.6% from 2.7% (core PCE to 3.3% from 2.7%). GDP growth was trimmed to 2.2%, while unemployment held at 4.3%. Fed Chair Kevin Warsh's first decision saw a unanimous 12-0 vote, but the statement dropped easing bias language, emphasizing persistent inflation risks from supply shocks and geopolitical tensions. The Consumer Price Index rose 4.2% annually in May, the highest since April 2023, with energy prices accounting for over 60% of the increase. Markets repriced: the 10-year Treasury yield jumped, the S&P 500 faced pressure on growth stocks, and the US Dollar Index strengthened around 100.310. Financial and energy sectors benefit from higher rates, while technology stocks like NVIDIA face valuation compression; REITs and utilities declined. The labor market remains resilient with wage growth pressuring services prices, and housing costs show signs of reacceleration.

The Federal Reserve cut interest rates by 25 basis points to a range of 4.00%-4.25% in September 2025, the first cut of the year, citing a challenging economy and weakening labor market. Chair Jerome Powell described the move as a risk-management cut, balancing upside inflation risks with growing downside labor risks. The Fed's updated projections signal two more cuts this year, with the funds rate expected to reach 3.60% by year-end. Powell noted that a BLS revision overstated payrolls by 911,000 jobs over the past year, intensifying labor market concerns. Inflation remains elevated, with headline CPI at 2.9% year-on-year and core inflation steady at 3.1%. The decision was not unanimous, with new Fed governor Stephen Miran dissenting. Markets are pricing in further easing, with expectations of up to six cuts before reaching a terminal rate.

With inflation topping 4%, the Trump administration is easing pressure on new Federal Reserve Chairman Kevin Warsh to cut interest rates, granting him a political grace period. President Trump still wants rate cuts, but top advisors like Peter Navarro and Scott Bessent now advocate holding steady, citing inflation from the Iran war. Warsh kept rates unchanged, and markets see a 79% chance of a rate increase by December. Trump has expressed confidence in Warsh, though he recently reiterated calls for lower rates. Energy prices have fallen after a Strait of Hormuz deal, but Middle East instability persists, leaving the inflation outlook uncertain ahead of the Fed's July meeting.

Micron CEO Sanjay Mehrotra warned on June 25, 2026, that the global RAM and NAND flash shortage will persist through 2027, with supply only gradually improving in 2028. The shortage, driven by AI demand for High-Bandwidth Memory (HBM), has caused a structural reallocation of manufacturing capacity away from consumer-grade DDR5. HBM production displaces three or more bits of DDR5 per bit, leading to price hikes of 93-98% for DDR5 in Q1 2026 and doubling consumer RAM costs since mid-2025. Micron's revenues quadrupled year-over-year. The shortage affects PCs, smartphones, and consoles, with vendors warning of 15-20% price increases. Building new fabs takes years, and the sub-$500 PC segment may vanish by 2028. Gamers face 50% quarterly price hikes, and Micron exited its consumer Crucial brand to focus on AI clients like Google and NVIDIA.

A ceasefire between the U.S. and Iran in late June briefly allowed the International Maritime Organization to begin evacuating trapped ships and over 11,000 seafarers from the Strait of Hormuz, which Iran had effectively closed since late February after U.S. and Israeli attacks. The operation routed vessels along Oman's southern coastline, but halted days later when the Singapore-flagged Ever Lovely was attacked; no one claimed responsibility, but Iran's Revolutionary Guard criticized the evacuation as lacking Iranian involvement. Iran continues to assert control over the strait, demanding ships coordinate and obtain clearance, setting a dangerous precedent for other global waterways like the Strait of Gibraltar or Malacca. The strait normally carries about 20 million barrels of oil daily—20% of global consumption—and its closure has driven oil prices up, with Brent crude at $76 and WTI above $71, threatening inflation, corporate profits, and consumer spending. International maritime law, including the U.N. Convention on the Law of the Sea, offers little recourse as neither Iran nor the U.S. have ratified it, and President Trump's suggestion that the U.S. could control the strait and collect tolls further undermined confidence in the independence of international waterways.

South Korea's KOSPI has now fallen for three consecutive sessions, losing about $2.18 trillion in market value and putting the index on track for its steepest monthly drop on record. The benchmark plunged as much as 12.6% intraday on Tuesday before closing down 6%, extending Monday's near-11% rout and erasing almost 40% of its value from a peak reached just over a month ago. The cumulative decline from the June 19 all-time high of 9,385.59 now exceeds 3,722 points in six weeks, wiping out approximately ₩2.5 quadrillion and dropping the KOSPI from the world's sixth-largest stock market to 11th place. Under parliamentary pressure, Finance Minister Koo Yun-cheol apologized for the introduction of single-stock leveraged ETFs, saying they had not been considered carefully enough. After an emergency meeting late Wednesday with the Bank of Korea governor and financial regulators, the Ministry of Finance announced immediate further curbs on single-stock leveraged products, including individual investment limits (capped at up to 20% of an investor's total investment amount), higher trading costs, simulated trading requirements, and preparation of a legal basis for emergency market-stabilization steps. The Blue House, with President Lee Jae-myung in Brazil, has refused a bailout, characterizing the crash as a 'reassessment process' and citing external triggers including Chinese memory chip expansion and AI investment doubts, along with structural factors: excessive retail trading, derivative proliferation, and heavy concentration in Samsung Electronics and SK Hynix. Retail investors have erupted in fury, accusing the government of encouraging market entry with 'KOSPI 5000' or '9000' targets and now deflecting blame. Despite the tumble, the KOSPI is up 41.5% in US dollar terms year-to-date, making it the best-performing major market this year. The crash remains less severe than the 57% drop during the 2008 financial crisis, which unfolded over roughly a year.

Asian markets plunged as the US-Iran War escalated and Trump announced new tariffs, compounding global economic uncertainty. Japan's Nikkei, South Korea's Kospi, China's Shanghai Composite, and Hong Kong's Hang Seng all fell sharply, while US indices like the Dow Jones, Nasdaq, and S&P 500 also closed lower. Rising crude oil prices heightened concerns for India, threatening higher inflation and slower economic growth. The geopolitical tensions and trade policy shifts are pressuring investor sentiment, with certain sectors facing potential headwinds or benefits if the conflict persists.

Crop prices have hit a three-year high due to heat waves, conflict in the Black Sea disrupting grain trades, and the closure of the Strait of Hormuz, which has blockaded 3.9 million tonnes of urea exports—about 30% of the region's annual fertilizer exports. The International Food Policy Research Institute warns of an 'input crisis' that could become a full-blown food crisis, especially in poor countries, as fertilizer supply shortages rise. A UN report warns that rising energy and fertilizer prices from conflicts could push an additional 9 to 18 million people into hunger, with the average cost of a healthy diet increasing nearly 25% since 2021 to 4.28 PPP dollars per person per day.

Treasury Secretary Scott Bessent faces a $40 trillion refinancing challenge as the 10-year Treasury yield hit 4.705%, its highest since a brief spike in January 2025 and levels not seen since before the 2007 financial crisis. The 30-year yield reached 5.182%, driven by Brent crude topping $100 a barrel and jobless claims falling to 187,000, well below expectations. About half of Federal Reserve officials now anticipate a rate hike this year. Total federal debt stood at $39.065 trillion as of January 1, 2026, with much of it issued when 10-year yields were under 2%. As that debt matures, refinancing at current rates raises carrying costs, while the Fed's funds rate remains at 3.75% and core PCE inflation hit a 12-month high.

Indian stock markets crashed on Monday, with the Sensex tumbling 2,345 points and the Nifty 50 plunging 704 points below 24,000, as escalating US-Iran war fears drove crude oil to a 52-week high above $110 a barrel. The Indian rupee hit a record low of 92.3350 against the dollar, falling 0.6%, amid a broader sell-off across Asian currencies. The conflict, now in its second week following US-Israeli air strikes on Iran, has severely restricted shipping through the Strait of Hormuz. Over the weekend, Iranian drone strikes hit Saudi Arabia, Kuwait, and the UAE, heightening supply concerns. Global markets also slumped, with Dow futures sliding nearly 1,000 points and Asian indices dropping up to 8%.

Wednesday's US May CPI release is the most consequential data point ahead of the Federal Reserve's June 17 rate decision, with money markets pricing a 98% probability of a 25 basis-point hike by December. The May jobs report, which came in well above forecasts, has extinguished rate cut expectations that had been credible before the US-Iran conflict began. Analysts say a hotter-than-expected CPI print would make it very difficult for policymakers to resist further tightening, as inflation already runs persistently above the 2% target. A key watch point is whether energy-driven inflation, amplified by the US-Iran conflict and Hormuz disruption, is bleeding into core categories. Thursday's PPI figures will add a second layer, signaling where headline inflation may head in coming months.

South Korean stocks triggered circuit breakers on two consecutive days in late July, with the KOSPI plunging 16.2% and market value evaporating by $2.18 trillion. The government imposed emergency measures, including restricting leveraged ETFs blamed for amplifying volatility. Amid the economic turmoil, President Lee Jae-myung's disapproval rating broke 50% for the first time, hitting a record high, while his approval fell to 45.9%. Retail investor confidence collapsed, with many accusing the government of turning the market into a 'casino.' Youth unemployment also rose to 7% in June, driving more South Koreans to seek jobs in Japan.

Wall Street fears 'Trumpflation' could trigger a stock market crash as inflation pressures resurface despite cooling from 4.2% in May to 3.5% in June. Core PCE inflation remains sticky at 3.3%, above the Fed's 2% target, with the Cleveland Fed's Nowcasting tool suggesting it may persist around that level in July. Tariffs, geopolitical risks, and AI-related demand for chips and infrastructure are adding to price pressures, as noted in the June FOMC minutes. At the July 28-29 FOMC meeting, three voting members dissented in favor of a quarter-point rate hike, the first such split since 2016. Rising bond yields on long-term Treasuries and high valuations leave the market rally vulnerable, with little room for disappointment, despite record highs in the Dow, S&P 500, and Nasdaq driven by strong earnings and AI excitement.

In the first quarter of 2026, wages and salaries fell to roughly 43% of U.S. gross domestic income, the lowest share since the Great Depression, according to Federal Reserve data. While this figure excludes employer-paid benefits like health insurance, and the BLS reported a 3.2% year-over-year wage increase through June 2026, the long-term trend shows worker pay lagging far behind productivity gains. Some analysts trace the decline to President Nixon's 1971 decision to end the dollar's convertibility into gold, which dismantled the Bretton Woods system and altered the economic landscape.