Economic Commentary – June 2025

“Past performance is not indicative of future results,” and “sell in May and go away,” are each respectively, a requisite disclosure, and a renowned Wall Street adage that any sophisticated investor and market participant would assert are traditional formalities. Notwithstanding, sometimes formalities are countered with abnormalities. Akin to June 2024, the June boon in asset price returns experienced a resurgence as both equity and fixed income markets finished the month in positive territory, exhibiting strong performance amidst a U.S. economy that continually displays its resiliency while grappling with ubiquitous uncertainty, in conjunction with some economic indicators flashing signals of emerging pockets of weakness. As ongoing U.S. trade negotiations with global counterparts and deliberations between members of both the upper and lower chambers of Congress regarding the “One Big Beautiful Bill” legislative package purportedly moved forward, risk markets seemed to have adopted a degree of complacency, while tacitly yearning for several Federal Reserve rate reductions before year end.

Widely telegraphed, and as expected, on June 18, at the conclusion of the Fed’s fourth policy meeting of the calendar year, the FOMC unanimously voted to leave its overnight benchmark rate unchanged, maintaining the federal funds target rate range at 4.25% - 4.50%. However, while most policymakers adhered to the patient, “wait-and-see” approach in their post-meeting rhetoric that they have embraced for the first half of the year, Fed Governors Christopher Waller and Michelle Bowman each separately suggested they may be in favor of enacting a measured, 25 basis point rate cut at July’s meeting. This was the first noteworthy sign of division within the monetary policy-setting committee, fundamentally based upon the underlying impact tariffs would inflict on inflation. With 10% baseline levies and distinct sectoral duties already in place, and a looming expiration of the 90-day reprieve on reciprocal tariffs (initially announced on April 2) slated to take effect on July 9, Fed officials appear to be in contention on whether tariff impositions will have a one-time, transient effect on inflation, or whether the impact will be more enduring and persistent.

While no policy action at the June meeting was broadly expected and priced into market dynamics, the Fed released its updated Summary of Economic Projections (SEP), which provided deeper insights into the Committee’s assumptions and forecasted trajectory for the remainder of 2025. Revised from March’s projections, the change in real GDP was pared from 1.7% to 1.4%, while the unemployment rate was inched up to 4.5% from 4.4%. Headline PCE inflation and core PCE inflation were both raised +0.3% to 3.0% and 3.1%, respectively. Regarding interest rates, the median federal funds rate and longer-run neutral rate were both unchanged at 3.9% (indicating two rate cuts) and 3.0%, respectively. As we referenced in March, on the surface, an unrevised median federal funds rate may seem inconsequential and status quo. However, analyzing and dissecting the updated dot plot highlights the widening divergences amongst Fed officials regarding the magnitude of rate-reduction expectations for 2025. Of the 19 policymaking members, 25 basis point rate cut projections are as follows: Zero Cuts – seven members; One Cut – two members; Two Cuts – eight members; Three Cuts – two members. As of June 30, the interest rate futures market had assigned a probability of approximately three rate cuts, slightly more ambitious than the SEP.

U.S. Treasury yield curve saw yields in the 1yr – 30yr tenors all register double-digit descents as economic growth concerns fueled desires for rate cuts and dictated the trading narrative. Moreover, the 3m/10yr tenor pair inversion reemerged as the long end of the curve rallied.

2-year/10-year spread: 51 basis points

3-month/10-year spread: -7 basis points

2-year/5-year spread: 8 basis points

3-month/30-year spread: 48 basis points

U.S. Treasury Yield Curve Source: Bloomberg

June 2025 Macroeconomic Highlights

Inflation, Expectations, and Consumer Sentiment¹:

CPI: 2.4% year-over-year (+0.1% month-over-month); Core CPI: 2.8% year-over-year (+0.1% month-over-month)

PCE: 2.3% year-over-year (+0.1% month-over-month);Core PCE: 2.7% year-over-year (+0.2% month-over-month)

PPI: 2.6% year-over-year (+0.1% month-over-month); Core PPI: 3.0% year-over-year (+0.1% month-over-month) Core PPI less trade services: 2.7% year-over-year (+0.1% month-over-month)

Inflation Expectations: 1-year horizon: 3.2%, 3-year horizon: 3.0%, and 5-year horizon: 2.6%

Consumer Sentiment: 60.7 vs. 52.2 in May 2025; Current Conditions: 64.8 vs. 58.9 in May 2025

Consumer Expectations: 58.1 vs. 47.9 in May 2025

Labor Market²: The U.S. economy added +139,000 nonfarm payrolls in May, moderately topping the +126,000 expected by economists surveyed by Bloomberg. Notable job gains occurred in health care (+62,000), leisure and hospitality (+48,000), and social assistance (+16,000).

• U-3 official unemployment rate: 4.2% vs. 4.2% expectation: Unchanged from April 2025.

• U-6 unemployment rate (marginalized, part-time workers for economic reasons): 7.8% (unchanged).

• Labor force participation rate: 62.4% (-0.2%); Employment-to-population ratio: 59.7% (-0.3%).

• Average hourly earnings for private nonfarm payrolls rose 15 cents to $36.24 (+0.4% month-over-month, +3.9% year-over-year).

• Revisions: April 2025 clipped -30,000 to +147,000; March 2025 downsized -65,000 to +120,000.

Gross Domestic Product (GDP)³: According to the third and final estimate, real GDP decreased at an annual rate of -0.5% in the first quarter of 2025 vs. an increase of +2.4% in the fourth quarter of 2024.

• Consumption: +0.5%; GDP Price Index: +3.8%; PCE Price Index: +3.7%; Core PCE Price Index +3.5%.

• Real disposable personal income: +2.5% vs. +2.5% in the fourth quarter of 2024.

• Personal savings rate as a percentage of disposable income: 4.3% vs. 3.8% in the fourth quarter 2024.

• Average of Real GDP and Real GDI: -0.1% vs. +3.8% in the fourth quarter of 2024.

Housing Market⁴: Existing-home sales grew +0.8% (month-over-month) from April to a seasonally-adjusted annual rate of 4.03 million in May. Month-over-month sales in the Northeast, Midwest, and South advanced +4.2%, +2.1%, and +1.7%, respectively, while sales in the West faded -5.4%.

• Year-over-year sales waned -0.7%, down from 4.06 million in May 2024.

• Total housing inventory registered 1.54 million units, +6.2% from April, and +20.3% from one year ago (1.28 million units). Unsold inventory sits at a 4.6-month supply at the current sales pace.

• The median existing-home price for all housing types was $422,800, +1.3% from May 2024 ($417,200), as prices rose in the Northeast, Midwest, and West, but slipped in the South.

• Average commitment rate for a 30-year, conventional, fixed-rate mortgage: 6.77%.

• New Home Sales: 623,000 (-13.7% month-over-month).

1 Source: Bureau of Labor Statistics (BLS), U.S. Department of Commerce, Federal Reserve Bank of New York – Survey of Consumer Expectations, and University of Michigan Surveys of Consumers

2 Source: Bureau of Labor Statistics (BLS)

3 Source: Bureau of Economic Analysis (BEA)

4 Source: National Association of Realtors (NAR), U.S. Census Bureau, and The Department of Housing and Urban Development

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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.  Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance. Investing involves risk including loss of principal. Forecasts contained herein are for illustrative purposes only, may be based upon proprietary research and are developed through analysis of historical public data.