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- Minutes from the Federal Reserve’s (Fed’s) June meeting showed a small group of officials backed raising rates, a signal that the case for tighter monetary policy is building.
- Both major readings of U.S. services activity continued to signal expansion in June, reinforcing the sector’s role as a stabilizing force for the broader economy.
- Initial jobless claims came in below expectations last week, providing further evidence that the labor market has strengthened considerably from 2025.
1. Fed Minutes Point to Growing Support for a Rate Increase
The Federal Reserve released minutes from its June 16th-17th policy meeting last week. Officials voted to hold the federal funds rate steady at 3.50%–3.75%. However, the minutes revealed that a small number of participants believed a rate increase was warranted.¹
That view reflects a broader shift inside the Fed. Nine of the 19 policymakers indicated in their economic projections that at least one rate hike would be appropriate before year-end.¹ Markets are now pricing in roughly a 75% probability of a rate increase in 2026.²
Inflation is the central concern. Consumer prices rose at an annual rate of 4.1% in the most recent reading, more than double the Fed’s 2% target.¹ Price growth has now remained above that threshold for five consecutive years.¹
Core inflation, which excludes food and energy, has climbed above 3% and is not expected to ease materially through the end of the year based on the Fed’s own internal forecasts.¹ Several officials noted that current interest rate levels may not be applying meaningful downward pressure on prices.¹
Officials also noted that strong demand for artificial intelligence infrastructure is likely to sustain upward pressure on technology prices and electricity costs.¹ The Fed’s next scheduled meeting is July 28th-29th.
2. Services Sector in Expansion Territory for a Third Straight Month
The services sector represents the largest share of U.S. economic output. Two widely followed surveys confirmed it continued to expand in June.
The S&P Global U.S. Services Purchasing Managers’ Index (PMI) tracks monthly business conditions across service-sector firms. In June, that reading rose to 51.2, up from 50.7 in May, supported by an increase in new business.³ The index held above the 50.0 threshold, separating expansion from contraction for a third consecutive month.³ While the result narrowly missed analyst estimates, it continued to signal growth.
Price pressures eased somewhat but remained elevated, reflecting the lingering impact of higher fuel costs on business operations.³
A separate measure, the Institute for Supply Management (ISM) Services PMI, came in at 54.0 in June, down from 54.5 in May, in line with expectations.⁴ The ISM index tracks new orders, employment, and supplier deliveries across service industries. The modest slowdown was partly offset by improved employment, which returned to expansion.⁴
Continued growth in services points to a broadly supportive economic foundation heading into the second half of the year.
3. Jobless Claims Stay Low as Labor Market Conditions Improve
New unemployment claims totaled 215,000 last week, slightly below the expected 220,000 and a modest improvement from the prior reading of 217,000.⁵ So far in 2026, weekly claims have averaged approximately 213,000, well below the 30-year median of more than 300,000.⁵ The sustained gap between current and historical norms suggests layoffs remain contained.
Last Friday’s June employment report added further confirmation. The unemployment rate declined to 4.2%, and nonfarm payrolls grew by an average of 111,000 per month over the past three months.⁶ That compares to a monthly average of 92,000 year to date.⁶
The contrast with 2025 is worth noting. Last year, both hiring and layoffs were subdued. Nonfarm payroll growth averaged roughly 10,000 per month, while initial claims averaged 226,000.⁵,⁶ This year, job growth has picked up and claims have remained low. Continued modest hiring and a low unemployment rate should help support broader economic activity through the remainder of the year.
For the period ending 7/10/26.
* 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 Federal Reserve Board of Governors, Minutes of the Federal Open Market Committee, June 16-17, 2026
2 Federal Reserve Bank of Atlanta, Implied Probability of Federal Funds Rate Target, July 2026
3 S&P Global Market Intelligence, U.S. Services PMI Press Release, June 2026
4 Institute for Supply Management, Services ISM Report On Business, June 2026
5 U.S. Department of Labor, Employment and Training Administration, Unemployment Insurance Weekly Claims News Release, July 9, 2026
6 U.S. Bureau of Labor Statistics, The Employment Situation, June 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_27
