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A Pivotal Week For Future Rate Cuts
The Macro Institute's Weekly Economic Primer
The Macro Institute
June 30, 2025
The Fed Will Be Watching This Pivotal Week For Labor Data
With core PCE now at 2.7% for May, inflation seems to be entering a zone that gives the Fed comfort. This means attention is set to quickly shift back to the labor market.
And this week could be a turning point.
First, there are a wave of PMIs coming out this week, each with an employment component that will offer a read on hiring momentum.
Then on Tuesday we get the JOLTS report. The Job Openings series may confirm a major shift. The U.S. labor market could be back in surplus territory for the first time since 2021. This is what we highlight in this week’s chart.
And in a rare twist, the holiday-shortened week gives us a Thursday double feature.
Jobless Claims and Nonfarm Payrolls are both on the same day before the fireworks.
It’s hard to imagine a more consequential stretch of data for the Fed’s September decision. It’s a shortened week, but the market will certainly be paying attention.
Enjoy the long weekend!
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The Macro Week Ahead
😀 The Market’s Optimism May Be Overdone
Economic policy uncertainty is cooling but not gone completely. After hitting record highs in April, uncertainty has eased as trade tensions have largely deescalated.
Reports from the WSJ and Bloomberg confirm U.S.–China negotiations are back on track, with China accelerating rare earth approvals and the U.S. easing tech export restrictions. EU talks look promising. Canada, however, is off the table after its digital tax triggered a hard stop from the White House.
Still, the narrative has clearly shifted. Deadlines are being extended, deals are in motion, and the market is pricing in a resolution by Labor Day. That optimism helped push the S&P 500 to all-time highs on Friday. But trade isn’t the only tailwind.
Falling inflation, now back near 2%, has driven a re-rating in the S&P 500 to 21x forward earnings. Markets love this setup: easing inflation + dovish Fed = higher multiples. However, the fundamentals aren’t as clean.
Earnings growth forecasts are still too high (6%–7% vs. 12% at the start of the year), and margin pressure is bubbling beneath the surface. Despite that, Fed futures show a 91% chance of a September rate cut. Chairman Powell said policy is already restrictive. San Francisco’s Mary Daly echoed that a fall cut looks increasingly likely if tariff-related inflation stays muted.
But here’s the contradiction. The Fed’s own projections now show 2025 Core PCE rising to 3.1%, up from 2.8% in March. May’s Core PCE came in at 2.7%, still above target. So, are rate cuts really a done deal?
Markets seem convinced, but unless the labor market cracks soon, the Fed may be forced to push back against those expectations.
🗽 A Short, But Important Week
Markets are closed Friday for July 4th, but the calendar for the week is stacked.
On Monday, it’s the Chicago and Dallas Fed. Tuesday brings us the ISM Manufacturing Index. Last month’s ISM was 48.5 (contractionary). Regional readings suggest stabilization, but volatility remains.
Prices Paid remains the stat to watch. It hit 70 in May, the highest of the cycle, but still shy of the post-COVID peak of 90. These figures are strong leading indicators for CPI and PCE.
For now, we’re not overreacting to a one month’s rebound, but if June confirms the trend, it could shift the inflation narrative quickly.
💼 All Eyes On The Labor Market
Employment data dominates the week. While labor markets have held strong, cracks are showing. Jobless claims are rising, labor market surprise indices have turned negative, and “jobs easy to get” sentiment is slipping.
On Tuesday, we’ll see S&P Employment Indices plus JOLTS. We’ll watch for softness in openings, quits, and layoff rates. June nonfarm payrolls and the unemployment rate drop on Thursday this month due to the holiday. This is the big one. The Fed expects unemployment to rise from 4.2% to 4.5% by year-end. Surveys suggest we’re already past the trough and headed toward 5%.
If that happens, the Fed may be right to stay dovish, but we’re not there yet.
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