U.S. Airstrikes, Fed Actions, and Economic Trends in Focus

Matthew Rubin Chief Investment Officer

1. U.S. airstrikes on Iranian nuclear sites, over the weekend, sent oil prices higher.
2. The Federal Reserve kept interest rates unchanged at its June meeting and maintained its forecast for two rate cuts this year amid updated inflation and growth expectations.²
3. Jobless claims edged slightly lower last week, reflecting a still-strong but gradually cooling labor market. Wage growth continued to outpace inflation, supporting consumer spending.³
4. Retail sales declined more than expected in May, driven by weaker spending on vehicles and building materials. Still, core retail categories and discretionary spending demonstrated strength, indicating steady household demand.

1. U.S. Airstrikes on Iran Rattle Markets, Oil Prices Surge

Stock futures fall after the U.S. launched airstrikes on Iranian nuclear sites, entering the war against Iran and raising fears of a wider Middle East turmoil. The conflict pushed oil prices up 3.8% to nearly $77 a barrel.¹ Dow, S&P 500, and Nasdaq futures each dropped between 0.3% and 0.4%.¹ The markets are now bracing for Iran’s response, which could include targeting U.S. forces or closing the Strait of Hormuz, a vital route for global oil. With the U.S. now fully involved, the baseline for oil is shifting higher.

2. Fed Held Rates Steady, Signals Slower Pace for Future Cuts

The Federal Open Market Committee (FOMC) wrapped up its June meeting last week by keeping the federal funds rate target unchanged at 4.25%–4.50% and continuing to forecast two rate cuts by year-end.² The FOMC also lowered its outlook for real GDP growth while raising its estimates for inflation and unemployment. The Fed has been on hold this year, awaiting data on how tariffs might affect inflation, which is expected to rise in the short term, as consumers continue to absorb higher import costs. This could lead to temporary price increases without creating long-term inflation pressure. The strength of the labor market has provided the Fed with room to wait before easing. Meanwhile, bond markets priced in two rate cuts for this year and three more for next year.

3. Jobless Claims Ticked Lower as Labor Market Continued to Cool Gradually

Initial jobless claims fell to 245,000 last week, coming in below expectations of 250,000.⁴ Continuing claims, which track the number of people still receiving unemployment benefits, slipped to 1.94 million from 1.95 million the week before.⁴ While claims remained relatively low, they have increased gradually this year. This suggests the labor market stayed solid but continued to cool from a strong starting point. The unemployment rate held steady at 4.2%, and there were still 7.4 million job openings.⁴ Wage growth outpaced inflation, helping to support consumer spending and economic momentum.

3. Retail Sales Missed Expectations, but Discretionary Spending Remained Resilient

Consumer spending was in focus last Tuesday, June 17^th, as May retail sales fell more than expected. Headline sales declined by 0.9% MoM, missing forecasts for a 0.7% drop.⁴ Weaker spending on building materials and motor vehicles drove the decline; auto sales likely pulled back after strong March figures, when buyers moved ahead of expected tariffs. April retail sales were also revised lower, showing a 0.1% decline instead of an expected 0.1% gain.⁴ Still, there was a silver lining: Control-group sales, which exclude volatile categories like gas, autos and building materials, rose 0.4% in May, matching expectations.⁴ Discretionary spending on items like furniture and clothing also increased, pointing to continued strength in household demand.

For the period ending 6/13/25.
* Small-cap stocks are represented by the Russell 2000® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.

Sources
¹ CNBC
² U.S. Federal Reserve
³ CME Fed Watch
⁴ FactSet

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