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.

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.

Federal Reserve Chair Kevin Warsh presided over his first Federal Open Market Committee meeting on June 17, with the committee voting unanimously 12-0 to hold interest rates steady at 3.50–3.75 percent, the fourth consecutive hold. The decision was widely expected amid stubborn inflation, which rose 4.2% year-over-year in May, a three-year high driven largely by an energy shock from the U.S.-Israeli war with Iran that began on February 28. The Fed's preferred inflation gauge, the Personal Consumption Expenditures index, recently climbed above 4%, double the central bank's 2% target. Energy prices surged 3.9% in May alone, accounting for 60% of the monthly all-items increase. The FOMC's statement acknowledged that economic activity continues to expand 'at a solid pace' but noted this growth has occurred 'despite elevated uncertainty that owes, in part, to the conflict in the Middle East.' The committee also said inflation remains high partly due to 'supply shocks that have driven price increases in certain sectors, including energy'—an unambiguous reference to the Iran war initiated by President Trump. Warsh subtly placed blame on Trump's policies without naming him, and when asked if he had spoken with the president since his swearing-in, he replied, 'So on the president, I don't have anything for you.' He has, however, continued the tradition of meeting Treasury Secretary Scott Bessent for breakfast three times, discussing developments in the Middle East. The rate hold was overshadowed by a sharply hawkish shift in the Fed's updated dot plot projections: the median now shows one quarter-point rate hike by late 2026, with the committee evenly split—nine policymakers expecting rates to remain steady or decline and nine projecting at least one hike, including six who projected two quarter-point increases. That marks a stark reversal from March, when no policymakers anticipated a 2026 rate increase. The median projection for the federal funds rate at end of 2026 rose to 3.8% from 3.4% in March. Nine members of the committee expect at least one rate increase in 2026, and only one member predicted a rate cut this year. Policymakers raised their year-end inflation forecast to 3.6 percent and lowered their economic growth outlook to 2.2 percent for 2026, underscoring persistent price pressures partly due to supply shocks from the Middle East conflict. Warsh himself abstained from submitting an interest-rate projection, calling the exercise unhelpful and expressing skepticism about heavy reliance on forward guidance. He reinforced the Fed's commitment to price stability, describing it as 'unambiguous and unanimous.' The accompanying statement was notably shorter—roughly 130 words versus over 300 under Powell—and ended with a stark declaration: 'The Committee will deliver price stability.' It also reaffirmed the policy of 'maintaining ample reserves in the banking system.' Warsh's news conference was also slightly shorter, and he announced five task forces to overhaul communications, the balance sheet, data sources, AI's impact, and the inflation framework, with most expected to wrap up by year-end. He confirmed press conferences will continue but hinted at fewer, saying they should be held only when there is 'something important to say.' Treasury yields rose sharply, with the two-year yield climbing more than 14 basis points to 4.187% and the 10-year yield up 7 basis points to 4.487%. The S&P 500 ended Wednesday's session down 1.2 percent, its worst performance ever on the first rate decision day for a new Fed chief. The U.S. dollar index jumped. Mortgage rates are expected to remain near 6.5 percent, with economists seeing little near-term relief for refinance activity or housing affordability. The peace agreement between the U.S. and Iran could ease inflation if it fully reopens the Strait of Hormuz, but there is no guarantee it will remain fully open, and oil prices could stay elevated compared to pre-war levels. Officials expect just one rate cut in 2027, which would leave rates where they are if a hike occurs later this year. Following the meeting, CME Group's FedWatch estimated a 36.3% chance of a rate hike at the next FOMC meeting and 0% chance of a rate cut, with odds of a rate increase rising to 85.5% by the FOMC's last 2026 meeting in December. Kalshi prediction markets show a 54% chance of a rate hike before 2027, 72% before July 2027, and 79% before 2028. Warsh, who has vowed 'regime change,' replaced the Fed's typical forward guidance with a stark declaration: 'The Committee will deliver price stability.' He has already spoken with the Fed's inspector general about the ongoing $2.5 billion renovation of the Fed's Washington headquarters, with a report due this summer; the project is financed through the Fed's own earnings, not taxpayer dollars. The timing of the Fed's interest rate pause, even with a potential subsequent hike, could set retirees up for the biggest Social Security cost-of-living adjustment (COLA) in years. Following May's CPI-W, the nonpartisan Senior Citizens League estimated 2027's Social Security COLA at 3.8%, and independent analyst Mary Johnson raised her projection to 4.7%. If the Fed raises rates, it could lead to a pullback in consumer spending, causing inflation to slow and potentially a smaller COLA. However, the Fed's next policy meeting is scheduled for July 28-29, and unless there's a major increase in inflation, the central bank could leave rates unchanged once again. Even if the Fed opts to raise rates at its mid-September meeting, it will be too late for a rate hike to drive a notable change in consumer spending before the 2027 COLA is set, as it can take weeks to months for rate changes to trickle down to consumer interest rates. That scenario could end up being the best possible outcome for Social Security recipients: if inflation remains elevated just enough to allow for a large 2027 COLA but then drops steeply in October following a Fed rate hike, seniors might benefit from a generous raise and a gradual decline in prices. The big theme at Warsh’s press conference was his vision of sweeping changes to current central bank practices. He announced the creation of task forces to review five areas central to monetary policy: the Fed’s communications, including future press conferences and dot plots; the central bank’s balance sheet; the use and reliance on existing data sources; productivity and jobs in the era of AI; and the Fed’s inflation framework, which will not include a revision of the central bank’s 2% inflation target. Investors across asset classes looked past the new Fed chair’s vision for changes and focused on the hawkish tilt to the dot plot. Wall Street slid, with the benchmark S&P 500 index shedding 1.2%, its worst performance ever on the first rate decision day for a new Fed chief. The U.S. dollar index jumped, and Treasury yields surged as government bonds were dumped. The more rate-sensitive U.S. 2-year yield soared 14 basis points to 4.187%, while the longer-end, benchmark 10-year yield climbed 7 basis points to 4.487%. Economists and analysts offered varied reactions: Kim Escue of Shelton Capital Management noted Warsh's reaffirmation of the 2% inflation target suggests a rate cut this year is likely off the table, with rates on hold for the balance of the year. Bill Adams of Fifth Third Commercial Bank said the market reaction reflects the absence of any sign that political pressure is influencing the Fed, shutting down that discussion. Justin Wolfers of the University of Michigan interpreted Warsh's statement as signaling a Fed focused on inflation, with 'Hawkish Kevin in the building.' Diane Swonk of KPMG noted that nearly half the committee penciled in at least one rate hike in the back half of the year, with only one person discussing a cut. Mohamed El-Erian praised Warsh's more open and concise delivery. Claudia Sahm criticized Warsh for not sharing his thinking on monetary policy, saying his refusal to participate in the dot plot exercise left her with no idea what he thinks. Freya Beamish of GlobalData TS Lombard argued Warsh is just buying time, and without forward guidance, markets will eventually have to force the issue. The Fed's next policy meeting is scheduled for July 28-29. For big banks like Goldman Sachs, JPMorgan Chase, Citigroup, and Bank of America, the steady-rate environment provides a longer window to bring major deals like the SpaceX IPO to market, as higher rates could dampen investor sentiment. Additionally, stable-to-higher rates allow banks to charge more on loans while potentially slow-walking deposit rate increases, widening their profit spreads—though a recession triggered by rate hikes could reduce loan demand and increase defaults. Consumer prices rose 4.2% year-over-year in May, a three-year high, driven largely by an energy shock from the U.S.-Israeli war with Iran. Employers added 172,000 positions in the most recent monthly report, giving hawkish officials more confidence that the jobs picture is stable enough to allow a tighter monetary stance aimed at bringing prices down. Warsh entered the meeting facing pressure from opposing directions: A bond market that had been pricing in a rate increase and a president who has publicly called for cuts. Trump, who tapped Warsh for the role, has made no secret of his desire for cheaper borrowing costs and has gone so far as to joke publicly about taking legal action should rates not come down. Rate decisions, however, require a committee vote. Powell opted to stay on in his separate capacity as a sitting governor on the Board. Investors should expect volatility, and buying assets resilient to rising rates—such as big bank stocks, insurance stocks, and consumer staples—could be the best bet. Warsh, who was sworn in as the 17th Fed chair on May 22, 2026, has been described as the most crypto-friendly Fed chair in history. During his confirmation process, he disclosed investments in over 30 crypto-related projects, including tokens like Solana and Optimism. He has characterized Bitcoin as an 'important asset' comparable to gold and has voiced the opinion that digital assets are integral to the current financial services landscape, emphasizing the need to incorporate them into the broader financial system for both investment opportunities and consumer protections. For crypto investors, the conditions that typically fuel rallies are nowhere on the horizon: a federal funds rate already at 3.5% to 3.75% with potential to go higher means the opportunity cost of holding non-yielding assets like Bitcoin remains elevated. Investors should watch upcoming PCE and CPI readings to see if the hawkish half of the committee gains converts, and also monitor whether Warsh's pro-crypto stance translates into more accommodative banking guidance, clearer token classification frameworks, or reduced enforcement-as-regulation from adjacent agencies.

The Federal Reserve held its benchmark rate steady at 3.50%-3.75% at the June 17, 2026 meeting, but the quarterly dot plot revealed a sharp hawkish shift: nine of 18 FOMC members now project at least one rate hike before end-2026, with six expecting two quarter-point increases—a dramatic reversal from March's median projection of cuts. New Fed Chair Kevin Warsh, chairing his first meeting, broke tradition by not submitting his own rate projection, signaling a potential overhaul of the communication tool; he also announced task forces to review the Fed's operations and strategy. The central bank dropped language signaling future rate cuts from its policy statement. The median forecast for end-2027 rates remains at 3.50%-3.75%, but upgraded inflation projections—headline at 3.6% and core at 3.3% by end-2026, up from 2.7%—drove the hawkish tilt. Markets reacted sharply: the 2-year Treasury yield surged 16 basis points to 4.216%, the Dow fell 0.98% to 51,492.55 after hitting a record intraday high above 52,000, the S&P 500 slipped 1%, and the Nasdaq declined 0.5%. Futures now price rates reaching 3.8% by September and near 4% by year-end. Warsh, who did not participate in the dot plot, has long criticized quantitative easing and advocated rules-based policy; his task forces will examine balance sheet management and inflation targeting. The Fed also upgraded its inflation forecasts to 3.6% headline and 3.3% core by end-2026, up from 2.7% in March, while maintaining the long-run rate expectation at 3.1%.

Federal Reserve Chair Kevin Warsh has withheld his interest-rate projection from the Summary of Economic Projections (SEP), signaling a potential shift from the transparency era under Ben Bernanke toward a more ambiguous communication style reminiscent of Alan Greenspan. Warsh, who has long criticized forward guidance, declined to submit a dot in the June 2026 SEP after one FOMC member also failed to provide a projection. The move aligns with his Senate testimony rejecting previews of future decisions. The dot plot, introduced in 2012 to clarify policy after the 2008 crisis, has been criticized for creating an illusion of precision and constraining policymakers. Warsh's decision may signal a gradual reevaluation of Fed communications, though eliminating the dot plot entirely would require committee approval.

The 30-year Treasury yield has closed above 5% for 14 consecutive sessions through Friday, its longest such streak since July 2007, and has finished above that level 29 times this year—the most since 2007. This sustained move suggests the old ceiling is becoming a new floor, driven not by inflation fears but by rising real yields, which reached 2.42% last week while breakeven inflation fell to 2.26%. Higher oil prices, firm economic data, and persistent government borrowing are adding pressure, with yields rising across major developed markets. The impact has been uneven: the PHLX Semiconductor Index fell 8% from July 6 through Friday, the Nasdaq lost over 4%, and the S&P 500 slipped less than 2%, as rate-sensitive corners weaken. The next test is whether the Federal Reserve validates this higher-for-longer message.

On the opening day of the FOMC's July 28–29 meeting, President Trump renewed pressure on the Federal Reserve to cut interest rates, telling reporters aboard Air Force One that the U.S. 'should have the lowest interest rate in the world' and could achieve 8–12% annualized GDP growth. While he praised Fed Chair Kevin Warsh as 'fantastic,' he accused other Board of Governors members of being 'very political' and having 'bad intentions' for resisting monetary easing. Warsh, who succeeded Jerome Powell, has been cautious about forward guidance, a move seen as avoiding direct confrontation with Trump. Despite Trump's push, market expectations strongly favor a hold: the CME FedWatch tool shows 68.5% of traders anticipate the benchmark rate staying at 3.5%–3.75%, where it has been for four consecutive meetings, while about one-third price in a quarter-point hike. The June CPI data gave Trump partial rhetorical ground, with a 0.4% month-over-month decline pulling the annual inflation rate to 3.5% from 4.2% in May, and core inflation easing to 2.6%. However, fuel costs remain elevated 15.7% year-over-year due to Middle East conflict and Strait of Hormuz tensions, and Dallas Fed President Lorie Logan has called for rates to be 'modestly higher.' Mortgage industry veteran Melissa Cohn noted that the Iran conflict, not Fed communication, is the dominant force driving mortgage rates higher. Warsh described the Fed's internal debate as a 'family fight,' with some officials advocating rate hikes due to persistent inflation and others suggesting cuts if inflation subsides. The Fed's decision is expected Wednesday, July 29.

J.P. Morgan has warned that global interest rates are set to spike by the end of 2026, driven by two key factors: rising government deficits and de-population. In a note, analysts led by Joyce Chang highlighted a global breakdown in fiscal discipline, with public debt reaching $100 trillion and deficits pushing up borrowing costs. The U.S. faces particular risk due to its large debt stock and lack of political will for fiscal consolidation. Meanwhile, aging populations and declining birth rates in advanced economies will reduce the labor supply and increase demand for pension and healthcare spending, further pressuring public debt. J.P. Morgan called de-population an underappreciated risk that will lower savings and contribute to higher interest rates.

Treasury Secretary Scott Bessent's strategy of using verbal reassurance to manage borrowing costs has faltered, as the 30-year Treasury yield closed at 5.06% on July 17, 2026—a level not seen since before the 2008 financial crisis. Bessent had argued throughout early 2026 that inflation would cool and the Fed would cut rates, but the long end of the yield curve, driven by long-term inflation expectations rather than official messaging, has resisted his influence. The yield briefly spiked to 5.18% on May 19 amid an inflation scare tied to the Strait of Hormuz closure, the highest since July 2007. Notably, the two-year note moved even more sharply against Bessent, signaling market skepticism about rate cuts.

Persistent inflation over five years has raised consumer prices more than 25% since 2021, with a 3.5% annual rate in June 2024, straining Americans across income levels. The crisis, which began under President Biden and continued into Donald Trump’s second term amid tariffs and the Iran war, has forced consumers like Mike DeDivitis, 71, to tap retirement savings for car repairs, while Esther Malkin, 65, relies on savings as Social Security fails to cover her rent in Monterey, California. Kerigan Rosado, 29, bakes bread to save pennies, and Mary Mehrkens, 34, in Culver City, California, faces $900,000 condos and $1,600 monthly childcare. Many report cutting dining out, driving less, and buying off-brand goods, with some saying conditions are worse than the Great Recession.

The Federal Reserve's interest rate path is increasingly uncertain after the U.S. economy unexpectedly lost 23,000 nonfarm payrolls in July 2026, against expectations for an 80,000 gain, according to the Labor Department's August 8 report. May and June payrolls were revised sharply lower by a combined 103,000, with May's gain cut from 129,000 to 63,000 and June's from 57,000 to 20,000. The unemployment rate dipped to 4.1% from 4.2% as labor force participation fell, declining 0.7% since January. Job losses were concentrated in local government education (50,000), retail (nearly 20,000), and financial activities (14,000), while healthcare added 22,000 jobs. Average hourly earnings growth slowed to 3.2% year-over-year, the lowest since May 2021. The Fed held its benchmark rate at 3.50%–3.75% on July 29, with three dissenting votes favoring a hike. Markets reacted by slashing the probability of a September rate hike to 44% from 55%, with the 10-year Treasury yield falling to 4.627%, the dollar index dropping, and spot gold surging 2.48% to $4,345.82. Richmond Fed President Tom Barkin called the report 'very consistent' with a labor market that is 'not loose, not tight,' noting a 'zero-ish workforce growth environment' due to lower immigration and aging demographics. Fed Governor Lisa Cook, who favored holding rates, said she would consider how raising rates affects job market stability but noted disinflationary forces may push inflation toward target without a hike. Capital Economics' Thomas Ryan argued the weakness forces the Fed to re-examine labor market health, while Carson Group's Sonu Varghese noted private sector added 30,000 jobs. The inflation picture remains mixed: the Consumer Price Index edged down to 332.568 in June from 333.979 in May, signaling some easing, but travel-related costs are stubbornly high—domestic airfares surged 26.5% year-over-year, North American hotel prices stand 64% above 2019 levels, and motor fuel costs jumped 40.9% compared to last year, partly due to supply-chain disruptions linked to the Iran conflict. This 'K-shaped' recovery sees affluent consumers continuing to spend on travel while lower-income households tighten budgets. J.P. Morgan Wealth Management strategists, who had previously anticipated a 25-basis-point hike in September, acknowledged that ongoing supply-chain disruptions and investor skepticism have 'lowered the bar' for such a move. Aditya Bhave, U.S. economist at Bank of America Securities, described the jobs data as 'a bit dovish on net' but still expects the Fed to focus on inflation and resume rate hikes later this year. Conversely, Cory Stahle of Indeed Hiring Lab suggested the Fed might reconsider the timing of hikes or even contemplate cuts if labor market weakness persists. The New York Fed's July Survey of Consumer Expectations showed rising confidence in finding a job (46.2%) but increased worries about job loss and debt defaults, particularly among households earning under $50,000. One-year inflation expectations edged down to 3.6%, while three- and five-year expectations held at 3.3% and 3.0%, well above the Fed's 2% target. The July CPI report, due August 12, will be pivotal in shaping the Fed's September 16 decision, as higher-than-expected inflation could still tip the balance toward a hike, according to Morgan Stanley's Ellen Zentner and Goldman Sachs' Lindsay Rosner. Geopolitical risks, particularly the Iran conflict disrupting oil supplies, remain a wildcard that could reignite inflationary pressures. Freshly minted Fed Chair Kevin Warsh has emphasized in stern tones his goal of fighting inflation, but the weak jobs report may force him to pull back on hawkish rhetoric and look more closely at the labor market part of the Fed's dual mandate. Economists expect July's CPI to come in at 3.4% year-over-year, down from 3.5% in June and 4.2% in May. As of Friday afternoon, market odds have the Fed keeping rates unchanged in September, but are still pricing in one to two hikes before the end of the year despite the ice-cold jobs report. Two scenarios could play out: if inflation is hot, stocks may drop as Warsh could hike rates despite the weak jobs outlook, a stagflationary outcome; if inflation is cool enough (low 3s or below), stocks could soar as investors anticipate the Fed can cut rates or at least stay put, potentially reversing expectations for hikes later this year.

Federal Reserve Bank of Kansas City President Jeff Schmid reiterated his primary concern is inflation, arguing in an Aug. 4 speech that monetary policy may not be tight enough and that returning inflation to the Fed's 2% target will require tighter policy. Schmid did not specify the timing or magnitude of potential rate increases, but the Fed held its benchmark rate at 3.5% to 3.75% at its latest meeting, with three officials voting for a hike. Meanwhile, the average 30-year fixed mortgage rate climbed for a fifth straight week to 6.69% as of Aug. 6, its highest level since July 2025, according to Freddie Mac. At that rate, principal and interest on a $400,000 loan would cost about $2,578 per month, roughly $185 more than at February's brief low of 5.98%. Mortgage rates have been influenced by the 10-year Treasury yield reaching 4.65%, up sharply from 3.97% before the U.S.-Iran conflict began in February, which also drove oil prices higher. In June, consumer prices were 3.5% higher year-over-year, with energy prices surging 15.7% and gasoline up 26.7%, though overall prices fell 0.4% month-over-month and core inflation (excluding food and energy) stood at 2.6% year-over-year. Schmid had previously cautioned against overemphasizing a single data point, noting volatile oil prices and persistent inflation excluding energy at 3.2%.

New York Federal Reserve President John Williams expressed optimism that inflation will gradually ease, forecasting a decline in the second half of this year and further in 2024, with a return to the 2% target by 2028. However, he warned that if inflation does not follow this trajectory, the Fed is prepared to raise interest rates. Williams supported the recent decision to hold the federal funds rate at 3.50%-3.75%, despite three dissenting Fed officials advocating for a rate hike. Inflation, measured at 3.7% in June, remains above target, pressured by supply shocks from tariffs and the Iran war, as well as demand from AI investments.

The July CPI report showed headline inflation rising 0.1% month-over-month to a 3.4% annual rate, matching June's figures and bolstering arguments that price pressures are persistent. The reading pressures the Federal Reserve to consider a rate hike, with Cleveland Fed President Beth Hammack arguing the FOMC should have raised rates last month and suggesting multiple increases may be needed. Fed Governor Lisa Cook warned she is prepared to act if disinflation doesn't appear soon. Market pricing for a September hold rose to 58% after the report. The Fed will review additional data, including the PCE report and August jobs and CPI figures, before its September meeting.

Sovereign AI infrastructure spending is driving a major capital cycle, benefiting six key stocks across compute, data center, and power layers. Nvidia leads with Q1 FY27 data center revenue of $75.25 billion (up 92% YoY) and Q2 guidance of $91 billion, capturing the largest dollar share. AMD follows as a credible second source with 107% data center growth and sovereign deals in India, Korea, and the UAE. Equinix and Digital Realty provide physical real estate, with Digital Realty landing a 200 MW AI lease and Equinix raising long-term growth to 10-13% through 2029. Vertiv and Eaton supply power and thermal equipment, with Vertiv's Americas segment growing 29.2% and Eaton's orders up 41% organically. Nvidia is best positioned overall, but each company captures distinct slices of sovereign AI spending.