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- The Federal Reserve (Fed) is expected to keep rates unchanged as inflation remained above target in May.
- Jobless claims fell more than expected, signaling continued labor market resilience.
- First-quarter GDP was revised higher, pointing to stronger economic momentum entering 2026.
1. Inflation Gauge Edges Higher, Reinforcing the Fed’s Cautious Stance
The Bureau of Economic Analysis reported last week that the headline Personal Consumption Expenditures (PCE) Price Index rose 4.1% year over year in May, in line with economists’ forecasts.¹ Energy prices remained the primary driver, climbing 24.3% from the same period a year earlier, while goods prices added further upward pressure.¹ Core PCE inflation, which excludes food and energy, edged up to 3.4%, modestly above the 3.3% consensus estimate.¹
With both measures well above the Federal Reserve’s 2% target, policymakers are broadly expected to hold rates steady at upcoming meetings, consistent with their posture throughout 2026.¹ A resilient labor market and stronger-than-anticipated GDP growth should, in our view, provide additional flexibility for the Fed to maintain its current stance, while keeping inflation as the primary focus.
The near-term path carries meaningful uncertainty. A sustained pullback in energy prices could limit further headline inflation pressure. However, continued pass-through of elevated energy costs into broader goods and services prices, coupled with rising long-term inflation expectations, could increase the likelihood that interest rates remain elevated for an extended period.
2. Labor Market Holds Firm as Jobless Claims Beat Expectations
Weekly filings for unemployment benefits declined more than expected for the week ending June 20th, pointing to continued resilience in the labor market despite a cautious hiring environment.
The Department of Labor reported last week that initial unemployment insurance claims fell 12,000 to a seasonally-adjusted 215,000 for the week ending June 20th, well below economist forecasts of 225,000.² Claims have remained within the 190,000 to 230,000 range throughout 2026, with no material shift suggesting broader labor market deterioration.²
Continuing claims rose modestly to 1.821 million for the week ending June 13th, while the unemployment rate held at 4.3% for a third consecutive month.³ Employers have not resorted to widespread layoffs despite rising costs and elevated geopolitical tensions, though hiring activity remains cautious across most sectors.² One developing trend worth monitoring: the median duration of unemployment climbed to 11.6 weeks in May, the longest stretch since November 2021, up from 11.0 weeks in April. This suggests that the process of finding new work is taking longer than in prior years.³
For investors, weekly jobless claims represent one of the most timely labor market indicators available. A stable workforce supports consumer spending, which underpins corporate earnings and, by extension, equity market performance. Shifts in this data frequently appear weeks before monthly reports confirm a broader change in direction, making it a valuable early signal for portfolio positioning.
3. Economy Gains Momentum as Final GDP Estimate Revised Higher
The Bureau of Economic Analysis revised Q1 2026 GDP growth upward to 2.1% last week, well above the prior estimate and a meaningful rebound from the slowdown that characterized the end of 2025.
The Bureau of Economic Analysis released its third and final estimate of first-quarter GDP growth last week, placing the annualized rate at 2.1%.⁴ The result was revised up from 1.6% in the second estimate, coming in above the 1.7% consensus forecast.⁴ Growth in the fourth quarter of 2025 registered just 0.5%, making the first-quarter acceleration a notable improvement.⁴
Investment, exports, government spending, and consumer spending all contributed positively to first-quarter output.⁴ The upward revision was driven primarily by a significant reduction in import figures, which reduced the drag on the headline growth calculation.⁴
For investors, GDP growth provides critical context for corporate earnings expectations. A 2.1% growth rate, paired with a stable labor market and continued consumer activity, supports the case for sustained earnings expansion in the quarters ahead.
For the period ending 6/26/26.
* 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 U.S. Bureau of Economic Analysis, Personal Income and Outlays, May 2026
2 U.S. Department of Labor, Employment and Training Administration, Unemployment Insurance Weekly Claims News Release, June 26, 2026
3 U.S. Bureau of Labor Statistics, The Employment Situation, May 2026
4 U.S. Bureau of Economic Analysis, Gross Domestic Product, Third Estimate, Q1 2026, June 25, 2026
Disclosures
Cary Street Partners is the trade name used by Cary Street Partners LLC, Member FINRA/SIPC; Cary Street Partners Investment Advisory LLC and Cary Street Partners Asset Management LLC, registered investment advisers. Registration does not imply a certain level of skill or training.
Any opinions expressed here are those of the authors, and such statements or opinions do not necessarily represent the opinions of Cary Street Partners. These are statements of judgment as of a certain date and are subject to future change without notice. Future predictions are subject to certain risks and uncertainties, which could cause actual results to differ from those currently anticipated or projected.
These materials are furnished for informational and illustrative purposes only, to provide investors with an update on financial market conditions. The description of certain aspects of the market herein is a condensed summary only. Materials have been compiled from sources believed to be reliable; however, Cary Street Partners does not guarantee the accuracy or completeness of the information presented. Such information is not intended to be complete or to constitute all the information necessary to evaluate adequately the consequences of investing in any securities, financial instruments, or strategies described herein.
Cary Street Partners and its affiliates are broker-dealers and registered investment advisers and do not provide tax or legal advice; no one should act upon any tax or legal information contained herein without consulting a tax professional or an attorney.
We undertake no duty or obligation to publicly update or revise the information contained in these materials. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of future results, the achievement of which cannot be assured. You should not view the past performance of securities, or information about the market, as indicative of future results.
A Composite PMI is a single index that tracks economic activity by combining the performance of both the manufacturing and services sectors, providing a comprehensive overview of overall business conditions.
Nothing contained herein should be considered a solicitation to purchase or sell any specific securities or investment-related services. It should not be assumed that any of the securities transactions or holdings discussed were, or will prove to be, profitable.
The Consumer Price Index (CPI) measures the monthly change in prices paid by U.S. consumers. The Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of prices for a basket of goods and services representative of aggregate U.S. consumer spending. The CPI is a measure of inflation and deflation. The CPI report uses a different survey methodology, price samples, and index weights than the producer price index (PPI).
Additional Disclosures: International and Foreign Securities, Fixed Income Investments, the Consumer Price Index, the Producer Price Index.
Comparative Index Descriptions: The Standard & Poor’s (S&P) 500 Index, The Russell 2000® Index, The NASDAQ Composite Index, The MSCI EAFE Index, Dow Jones Industrial Average® (Dow Jones or DJIA), The Bloomberg Barclays US Aggregate Bond Index (US Agg Bond), The CBOE Volatility Index (VIX). CSP2026001_26
