June 18, 2025: Soft Inflation, Hard Choice: Why the Fed Will Stay the Course

This week’s meeting of the Federal Reserve’s Open Market Committee (FOMC) will almost certainly result in no change to the target interest rate. While expected, the decision to hold rates steady will still raise questions among some market watchers. Last week’s Consumer Price Index (CPI) report for May came in weaker than anticipated, with core prices rising just 0.1% from the prior month and 2.4% from a year ago—despite expectations that higher tariffs would push prices up.

Still, the softer CPI report is unlikely to end inflation concerns. Many companies front-loaded inventory purchases earlier this year ahead of tariff increases. When they restock, they will face higher import costs, which could be passed on to consumers or absorbed through lower profit margins.

Another concern is geopolitical risk. Ongoing warfare between Israel and Iran raises the possibility of higher energy prices. At the moment, that risk feels distant because energy remains a relatively small share of U.S. household expenses. But a spike in oil prices could change that, pressuring consumer budgets and potentially weighing on broader spending.

All of this adds uncertainty to the inflation outlook, reinforcing the Fed’s cautious stance as it navigates conflicting signals from data and global events.

Weekly Market Update: June 18, 2025