U.S. stock indices closed the week mixed: Nasdaq and S&P 500 down, Dow around zero. At first glance, it seems like a typical market correction, but deeper signals are behind it. One key signal is the Federal Reserve's report from June 20, 2025. It contains not just an assessment of the current situation, but a very clear message to the markets: the rate may be cut, but only if the data continues to confirm a decline in inflationary pressure.
Amid this, conflicting signals emerged: Waller hinted at a rate cut in July, while Powell insisted on caution. Add to this the risk of export license cancellations for chipmakers and heightened tensions between Israel and Iran — and you have a formula for high volatility. Let's break it down.
What the Fed report says
The Fed's report for June is more than 60 pages of macroeconomic facts. Key signals:
Inflation is slowing but remains above the 2% target.
The PCE index fell to 2.6% year-on-year compared to 3.1% in March.
Core inflation (core PCE) is 2.8%, compared to 3.5% at the beginning of the year.
The labor market is stable, but hiring rates are decreasing.
Unemployment remains at 4%, but the number of job openings is decreasing.
The wage growth rate has slowed to 4.1% year-on-year.
Inflation expectations have stabilized.
According to Michigan surveys: the five-year horizon is 2.8%, with no sharp fluctuations.
Consumer spending remains resilient, but shows signs of slowing.
The growth rate of spending has slowed to 2.2% year-on-year.
Labor productivity is increasing, which offsets the pressure on business costs.
The takeaway from the report is clear: yes, inflation is slowing, but too slowly to hastily cut rates. However, if the trend continues, the Fed might begin a easing cycle in the second half of the year.
The market and Fed signals
In the wake of the report's publication:
Christopher Waller allowed for a rate cut in July if the trend confirms.
Jerome Powell insisted on caution and full adherence to decisions based on 'data, not dates.'
The probability of a rate cut in July according to the CME FedWatch Tool is around 65%.
Technologies are under pressure
The chip market reacted painfully to news of a possible cancellation of U.S. export licenses for equipment and chips to China:
Nvidia and TSMC lost more than 1% in a day.
Risks affect not only supply chains but also global ambitions in AI.
Geopolitics: a factor of uncertainty
President Trump postponed a decision on U.S. military intervention despite the escalation of conflict between Israel and Iran. The market interpreted this as a signal to maintain tension:
Oil prices remain volatile.
Short-term Treasury yields fell amid a flight to quality.
Triple expiration increased volatility
Friday's 'witching hour' — the expiration of options and futures — added short-term turbulence. Such days are often accompanied by high trading volumes and sharp price movements.
Conclusions
The Fed does not rule out easing but requires convincing data: inflation is declining, but slowly.
Chipmakers are becoming hostages to trade policy — any decision from Washington can instantly impact the market.
The Middle East is a source of permanent uncertainty, and markets are pricing in risks into asset prices.
The current situation increases interest in alternative assets: gold, cryptocurrencies, and bonds.
Shifts in rate expectations and increased geopolitical instability create fertile ground for volatility in the crypto market. If the Fed actually begins to cut rates in the second half of the year, it could trigger an influx of capital into risk assets, including Bitcoin and altcoins.
Especially under conditions where traditional markets remain sensitive to geopolitics and trade restrictions. Investors should closely monitor inflation and employment data, as they will determine the direction of U.S. monetary policy.
