Weekly Market Update: August 4, 2025
The Federal Reserve held the federal funds rate steady, in the range of 4.25% to 4.50%, at its July monetary policy meeting. This marked the fifth-consecutive pause by the central bank, and the inactivity was expected, as doing so provides more time to assess the impact of the Trump tariffs on inflation. The next Federal Open Market Committee (FOMC) meeting is scheduled for September 16th and 17th, allowing the Fed time to assess a number of reports on prices and employment. This will provide more insight on inflation and the overall state of the economy.
The central bank is more focused on price stability right now. That is because the other part of its dual mandate, fostering full employment, is not as much of a concern, with the nation’s unemployment rate falling to just 4.1% in June. Recent initial weekly unemployment claims have been averaging around 225,000, a level indicative of a tight labor market. Conversely, the pace of inflation is still running above the Fed’s target rate of 2.0%, and prices at the consumer level ticked up a bit in June. Fed leaders also believe that the impact of the Trump tariffs will be more notable in the late summer/ early fall months.
Meantime, second-quarter earnings season is easily exceeding low expectations. Indeed, with more than one-third of the S&P 500 companies having reported results as of press time, 80% had topped both revenue and profit estimates. In response, Wall Street has ratcheted up its growth forecasts. The earnings gains are giving a boost to the S&P 500 Index, even as the Federal Reserve keeps monetary policies restrictive. The higher cost of capital, though, is having a detrimental impact on the housing market, with sales of new and existing properties falling short of expectations in June.
Conclusion: Stocks performed well in July, getting a boost from solid second-quarter earnings growth and news of tentative trade deals reached with Japan and the European Union, two major trading partners of the United States. However, with monetary policy still restrictive, some caution may be warranted in a market where valuations look extended. August also has historically been one of the weaker months for equities.
Sources: ValueLine.com
