Economic Commentary

FOMC Review

Starting Friday, June 20, 2025, we expect a fairly sharp sell-off in U.S. equities & treasuries as well as the dollar, based on a thoroughly negative FOMC Policy Statement & Summary of Economic Forecasts. Details follow.

On June 18, 2025, the FOMC kept rates unchanged. As Trading Macroeconomics predicted prior to the release of materials, the summary of economic projections showed increased expected inflation, increased expected unemployment, increased expected federal funds rate and decreased US GDP.

Widely circulated comments were that the Fed analysis was that the proposed U.S. Tariffs had not impacted the data. Other analysis focused on the fact that the current statement asserted that economic uncertainty had diminished, whereas the previous statement asserted that economic uncertainty had increased.

Naturally tariffs had not shown up in the data, because they have been paused and are not yet implemented.

It is true that the FOMC wrote that economic uncertainty had diminished since March 2025. However, since March, 2025, the following has occurred.

(i) U.S. President Trump proposed unprecedently large tariffs that have yet to take effect;

(ii) US Congress proposed a budget raising the debt ceiling to $5 trillion, a 14% increase in the already staggeringly large and record $36.2 trillion US Federal Debt and two and a half times the $1.9 trillion 2025 Federal Budget deficit.

The annualized rate of interest on the Federal debt is approximately $1.2 trillion or 4.3% of US GDP.

By comparison total U.S. tax receipts were $4.8 trillion, $5.0 trillion, and $5.2 trillion in the years 2022, 2023 and 2024, respectively.

(iii) Lipper S&P 500 earnings growth forecast for 2025 has declined to 4.5% from 5.0%

(iv) The U.S. dollar has depreciated about 21.7% against a basket of common currencies

(v) May 2025 Job Openings declined by a modest 100,000 to 7.4 million from February 2025; May 2025 non-farm payrolls declined to 139,000, April 2025 was revised down and the figure was below the 12-month average of 149,000; average hourly wage increased by 3.9% in May 2025 versus 4.0% in February 2025 - all indications of [slight] decrease in demand for labor.

(vi) 1Q2025 delinquency rate on consumer debt was 4.3% rising a material 70 bps from the 3.6% in 4Q2024, meanwhile total bankruptcy filings have increased to 48,218 in may 2025, a 16.2% increase from January 2025.

(vii) Israel started a war with Iran and a day after he launched his own mobile telephone brand, President Trump tweeted on his own social media application an implicit threat to kill the Iranian leader.

It is difficult to fathom the thought process that could reach the conclusion that economic uncertainty had decreased since March 2025.

Preview published on 6/18/2025 before the FOMC release

The Federal Reserve Open market Committee will meet & release summary of economic forecasts this afternoon at 2 pm eastern, June 18, 2025.

My expectations are that in response to the massive, new uncertainty since the last summary in March 2025, the Fed will keep rates unchanged, the “so-called” dot plot will shift up, signaling fewer than the two rate cuts in 2025 that were signaled in the most recent summary. I expect that the GPD forecast will be reduced by approximately 20 bps, and forecast unemployment to increase by 10 bps.

Outside of the Fed, I expect the 10-year yield to increase to 4.8% by year’s end, reflecting further dollar weakness and weak US government financial position, possible shutdown fight perpetuating the United States’ decade-long inability to responsibly manage its finances.

There is tremendous uncertainty that did not exist in March 2025, as follows:

United States President has made executive orders imposing unprecedented massive tariffs that many economists speculate will be passed on to consumers and cause inflation to accelerate

The United States Congress has proposed competing budget dubbed the Big Beautiful Bill that contemplates increasing the United States budget deficit and debt limit by a $5.0 trillion dollars from the existing $36 trillion, at a time the deficit is $1.36 trillion for the first half of fiscal year 2025, is a 23% increase compared to the same period last year,

according to Trading Economics⁠

and the U.S. Treasury.

Congress will either make the 2017 tax cuts permanent, causing massive deficit pressure, or those cuts will be repealed by operation of law, representing one of the largest tax increases, ever.

Oil prices are up approximately 25% since the March 2025 meeting.

PCE, PPI and CPI have been muted, but still above Fed target levels, for the last five months, and many cite this as proving tariffs will not cause inflation - despite the fact that the tariffs have not been implemented yet.

Continuing unemployment claims have ticked up slightly, job openings declined meaning anecdotally the employment market is marginally weaker that in March 2025, but employment is not empirically extremely weak.

There is extreme geopolitical violence ongoing. Trump’s promise to end the Russian-Ukraine war has not been delivered and what the next steps in the recent Israel-Iran war are unclear.

The dollar value has plummeted in the last three months, and has not rebounded with US equities; the ten year treasury is yielding 4.36%.

Interestingly, today, June 18, 2025, at a press conference President Trump asked if he could appoint himself Chair of the Fed and repeatedly stated that Fed Chair Jerome Powell was “stupid.”

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