To be continued

Last week, the Federal Reserve elected to leave its benchmark interest rate unchanged at 4.25-4.50%. During the press conference that followed the decision, Fed Chair Powell again emphasized it would take time for tariffs to work their way through the distribution channels to the consumer. He expects to see larger impact as we move through the summer. Yet there probably won’t be enough data in time for the Fed meeting in July, shifting a potential rate cut to September. It looks like Fed watchers can keep their summer vacation plans.

The Fed’s latest economic projections point to slightly stickier PCE inflation. Officials expect it to hover around 3.1% this year and remain above target, at 2.4%, in 2026. Both levels were revised higher from the March projection, likely anticipating tariff impacts. Real GDP growth was shifted lower to 1.4% in 2025 and 1.6% in 2026; the unemployment rate was revised higher to 4.5% in 2025 and 2026, above the current rate at 4.2%. More stubborn inflation, paired with weaker economic and labor market growth, may put the Fed’s dual mandate of price stability and maximum employment at odds. This could potentially put the committee in a bind. Still, it expects to cut interest rates two times this year.

Other data last week included mixed May retail sales numbers. Headline May retail sales fell 0.9% month-over-month, softer than expected, mostly on weaker auto sales following tariff frontloading and lower gasoline sales. However, core retail sales (ex-auto, gasoline, building materials) came in stronger than expected, increasing 0.4% over April.