Equities reached new record highs throughout the week, coinciding with increased global attention in the Federal Open Market Committee (FOMC) meeting. From the last-minute addition of Stephen Miran to the ongoing controversy over Lisa Cook, there was no shortage of talking points at the beginning of the week. The FOMC delivered as expected, cutting their benchmark rate by 25 basis points to a target range of 4% to 4.25%. The move had been largely priced into bond yields but rates on money markets and overnight accounts adjusted accordingly. Markets were expecting more dissent among the committee after two members did such at the last meeting. However, only Miran did so this time - in favor of a 50 basis point cut.  

The new dot plot showed two more rate cuts this year and one in 2026. This is a break from June’s median projections for two total cuts this year, one in 2026 and another in 2027. The FOMC effectively front-loaded the cuts a bit more than last time. The most notable part of the dot plot is the number of silent dissents. Nine members are above the median target rate for 2025, implying rate cuts might not come as quickly as expected. The dispersion among future years is another point to consider with the range of consensus quite disparate the further out we go. The rate consensus generally declines over time, which leads to the Summary of Economic Projections (SOEP). The SOEP update reduced GDP growth expectations from 1.6% to 1.4% for 2025, increased them to 1.9% from 1.8% for 2026 and up to 1.9% from 1.8% for 2027. Estimates for the unemployment rate remained at 4.5% for 2025. The SOEP again reduced their projections for 2026 from 4.4% to 4.3%. For CORE PCE, the FOMC’s preferred inflation measure, the members expected it to stay at 3.1% for 2025, raised their estimate for 2026 from 2.4% to 2.6% and kept the projection for 2027 at 2.1%. In its base-case scenario, the FOMC will continue to lower rates while expecting the labor market to recover and get near its 2% inflation target in about two years. 

FOMC aside, FICO issued a report this week showing the national average credit score fell by two points, the largest year-over-year drop since 2009. Gen-Z borrower scores fell by three points on average, the biggest decline for any age group since 2020. The report also showed delinquency rates on auto loans, credit cards and personal loans are at or near their highest levels since 2009.

KEY INDICATORS THIS WEEK

Retail Sales - Rose for a third straight month. Moody’s Analytics reported as much as 49.2% of consumer spending in the U.S. comes from the top 10% of earners, the highest ratio since 1989.

Next week - Q2 GDP revision, personal spending and new home sales.