Steady Fed, Slightly Higher Rates
It was a relatively quiet week for economic data, which meant investors were laser-focused on the Federal Reserve’s policy meeting. As expected, the Fed held the federal funds rate steady, delivering a message that was nearly identical to their previous one. Still, mortgage rates ticked slightly higher by the week’s end.
The Fed acknowledged the current economic uncertainty—much of it driven by evolving government policy and global trade tensions. With tariffs expected to increase in July, the Fed is facing a tricky balance: If inflation climbs and unemployment rises at the same time, the usual monetary playbook becomes much harder to follow. Lower rates could stimulate job growth, but higher rates may be needed to combat price increases. For now, the Fed is staying cautious and plans to take a slow, measured approach to any future rate changes. Many investors expect a rate cut at the July meeting.
Positive Signs in the Services Sector
The most noteworthy economic report came from the Institute for Supply Management (ISM). The national services index rose to 51.6 in April—beating expectations and marking its highest reading since February 2024. A number above 50 signals expansion, suggesting continued strength in the services sector despite uncertainty elsewhere.
Record-Setting Trade Deficit
Meanwhile, the U.S. trade deficit hit a record high of more than $140 billion in March. With global tariffs set to rise on July 6, businesses and consumers have ramped up purchasing ahead of expected price hikes. March also saw record imports of consumer goods across a wide range of categories, including pharmaceuticals, apparel, furniture, and home appliances. On a positive note, a new trade agreement with the UK was finalized this week, and more deals may be on the horizon.
