Growth is still solid and jobs are steady, but prices remain too high for interest rates to come down soon.
The economy is still growing, but not picking up speed: GDP, Gross Domestic Product, the total value of everything the US economy produces, was 2.1% compared to last quarter, while unemployment was 4.2% and interest rates stayed high. The main shift was cooler inflation, with PCE, Personal Consumption Expenditures, the inflation measure the Fed watches most, easing to 3.41% compared to the same time last year, which helps rate-cut hopes, but Iran war fears could still raise gas and heating bills. What is keeping things steady is a job market that is holding up, with unemployment at 4.2% and new jobless claims still low. The next Core CPI, CPI without food and energy, which move around a lot month to month, is the key report to watch. Not investment advice.
The biggest moves in the numbers we watch since our last update.
PCE (Personal Consumption Expenditures, the inflation measure the Fed watches most) rose 3.41% compared to the same time last year, cooler than 3.49% expected and down from 3.8% in April. War fears tied to Iran could lift oil prices, which would raise gasoline and heating costs for households. Watch Core CPI (CPI without food and energy, which move around a lot month to month). If it stays near 3% or rises, inflation may stop improving.
PCE (Personal Consumption Expenditures, the inflation measure the Fed watches most) rose 3.41% compared to the same time last year, cooler than 3.49% expected and down from 3.8% in April. War fears tied to Iran could lift oil prices, which would raise gasoline and heating costs for households. Watch Core CPI (CPI without food and energy, which move around a lot month to month). If it stays near 3% or rises, inflation may stop improving.
The unemployment rate came in at 4.2%, a bit lower than 4.22% expected and down from 4.3% in May. Initial claims (the number of people who filed for unemployment benefits for the first time that week) were 222,000, near 224,500 the week before. June job growth was weak, which could mean slower pay gains and more caution from households. Watch the next jobs report. If unemployment rises and hiring stays weak, the labor market would be softening.
Risk mood is elevated, with investors facing bigger market swings even though the gap between 2-year and 10-year Treasury rates is still positive. War fears tied to Iran and excitement around AI are pushing markets in opposite directions, which can mean sharper day-to-day moves. Watch oil prices and major market indexes next. A further jump in oil or deeper stock drops would signal stress is getting worse.
GDP (Gross Domestic Product, the total value of everything the US economy produces) was revised up to 2.1% in the Third estimate from 1.6% in the Second estimate. War fears tied to Iran could hurt spending and business confidence, even as AI excitement supports some tech investment. Watch the next GDP update or retail sales. A clear slowdown would mean consumers and businesses are pulling back.
The Fed (the US central bank) is still on hold, and this week brought no new rate decision. News reports suggest rates may stay high into 2026, which can keep mortgages, car loans, and credit cards expensive. Watch the next Fed meeting and inflation data. Cooler inflation would support rate cuts, while hotter inflation would likely keep rates high.
Geopolitical risk stayed elevated as Iran war effects drove market volatility and inflation concerns, even as easing Hormuz fears and a tariff reversal supported risk assets.
Employment Situation below estimate: actual 4.20 vs 4.22.
Jobless Claims: 222,000.00 (no pre-release consensus available).
GDP: 2.10 (no pre-release consensus available).
PCE below estimate: actual 3.41 vs 3.49.
The week's events, lined up with how they likely affected the economy.
The Fed may keep interest rates high into 2026 because inflation is still running hot, which can keep pressure on stocks, home buying, and borrowing costs.
War fears tied to Iran are making markets jump around, while AI excitement is pushing some tech stocks up, so people managing their own money may see bigger short-term swings.
A sharp drop in big tech stocks could make the market more shaky for a while, especially for people heavily invested in tech funds.
The new Fed chair may be less willing to support financial markets, which could mean more stock swings and tighter borrowing costs for a while.
The US added far fewer jobs than expected in June, which could mean slower pay growth, weaker spending, and more market nerves in the next few weeks.
The 11 main US stock market industries, plotted by whether the economy is helping or hurting them, and how the industry itself is doing. Click any industry for details.
Each force, where it stands today, which way it's headed, and the data behind it.
Realized GDP: 2.10% QoQ SAAR
Real GDP growth is 2.10% QoQ SAAR and 2.68% YoY.
Core CPI: 2.85% YoY; 3m trend: 4.40%
Core inflation is 2.85% YoY with a 3m annualized trend of 4.40% (momentum gap 1.55 ppts).
Unemployment: 4.2%; claims 4wma: 222,000
Unemployment rate is 4.2% (YoY change -0.10 ppts); initial claims 4wma 222,000.
Policy mid: 3.625%; gap: 0.515 ppts
Policy midpoint is 3.625% with a 30-day change of +0.000 ppts; market rate gap (2Y minus policy) is 0.515 ppts.
2s10s: 35.0 bps
The 2s10s yield spread is 35.0 bps and the curve is normal.
Things that could change our view of the economy before next week's update.
The outlook could change fastest if next week's CPI, Consumer Price Index, the main measure of how much prices are going up, confirms that price pressure is really cooling. The other close turning point is the job market, because unemployment is still only 4.2% and initial claims, the number of people who filed for unemployment benefits for the first time that week, are still low at 222,000, so even a small crack would matter.
Core CPI, CPI without food and energy, which move around a lot month to month, is already at 2.85% compared to the same time last year. Another reading below 3% would strengthen the case that rates can stop hurting mortgages, car loans, and credit cards as much.
If Iran-related tensions push oil higher again, gas and heating bills would likely rise fast. That could undo some of the recent inflation relief and keep interest rates high for longer.
Right now, unemployment is 4.2% and claims are only 222,000 on the 4-week average. If claims rise for several weeks or unemployment moves back above 4.3%, people would worry more about paychecks and spending.
Policy is on hold, and news flow points to rates staying high into 2026. If inflation data stays hot, borrowing costs could stay painful for home buyers, car buyers, and businesses.
Real GDP, GDP after adjusting for inflation, is still growing at 2.1% compared to last quarter. If spending and business investment stay firm, the economy could keep growing even with high rates.
The gap between 2-year and 10-year Treasury rates is now positive at 35 basis points, one hundredth of a percentage point (25 bps = 0.25%). If that gap falls below minus 25 bps, recession risk would rise quickly based on this report's risk monitor.
Claims are still low, so this report will show whether the job market is staying steady or starting to weaken.
If claims jump well above recent readings, slowdown fears would rise fast. If they stay near 222,000, the economy still looks stable.
This is the biggest near-term test because cooler PCE just improved the inflation story, and CPI can either confirm or challenge that move.
If CPI comes in much hotter than expected, rate-cut hopes would fade and borrowing costs could stay high. If it comes in cooler, markets would likely lean toward easier policy later.
A second weekly claims report right after CPI can confirm whether labor is still holding up while rates stay high.
If claims rise two weeks in a row, people will take slowdown risk more seriously. If claims stay low, the job market still looks balanced.
This scenario looks closest because PCE already cooled to 3.41% compared to the same time last year, and Core CPI is already below 3% on a yearly basis. One more friendly inflation report would make this story much stronger.
Confidence is medium because the inflation trend improved, but we still need the next CPI and fresh jobless claims to confirm it.
A look back at how the economy's signals have shifted week by week.
PCE (Personal Consumption Expenditures, the inflation measure the Fed watches most) rose 3.41% compared to the same time last year, cooler than 3.49% expected and down from 3.8% in April. War fears tied to Iran could lift oil prices, which would raise gasoline and heating costs for households. Watch Core CPI (CPI without food and energy, which move around a lot month to month). If it stays near 3% or rises, inflation may stop improving.
Risk mood stayed cautious this week, even though the gap between 2-year and 10-year Treasury rates was a still-positive 31 basis points (one hundredth of a percentage point (25 bps = 0.25%)). Next, watch whether that gap keeps widening and whether stock markets stay shaky. More moves into safer bonds would signal rising worry about growth.
Market risk looks mixed: the gap between 2-year and 10-year Treasury rates was 29.0 basis points, one hundredth of a percentage point. Hopes for an Iran deal lifted stocks and pushed oil lower, which can calm markets and help lower gas prices. Watch oil prices and Middle East headlines next, because a sharp rebound would quickly raise market stress again.
Risk mood stayed cautious this week, even though the gap between 2-year and 10-year Treasury rates was 39.0 basis points (one hundredth of a percentage point (25 bps = 0.25%)). The Iran war could keep gas prices and market swings higher, which can pressure household budgets and retirement accounts. Watch energy prices and Treasury markets next. A bigger jump in oil or bond swings would signal more stress.
Risk conditions are more cautious this week, even though the 2s10s spread sits at 38.0 basis points (one hundredth of a percentage point (25 bps = 0.25%)). The Iran war has pushed oil near $100 and shaken stocks, which can raise gas costs and make markets jumpier. Watch oil prices and headlines from the Middle East. A further jump in oil would likely keep markets uneasy.
Risk conditions look mostly normal in market data, though caution is elevated, with the gap between 10-year and 2-year Treasury rates at 49.0 basis points, one hundredth of a percentage point. Fighting tied to Iran pushed oil prices higher and stocks lower, which can make markets more jumpy. Watch oil prices and bond markets next week; another sharp rise in oil would raise pressure on both inflation and markets.
