PNC economists provide insight into key indicators that may have an impact on current business performance and the path ahead.

Federal Funds Rate

  • The Federal Open Market Committee (FOMC) kept the federal funds rate unchanged in its policy statement on July 30, in a range between 4.25% and 4.50%. The FOMC cut the fed funds rate by a cumulative one percentage between September and December of 2024, but has kept the funds rate unchanged throughout 2025.
  • The forward-looking portion of today’s statement was unchanged from the previous one, from June 18, saying that the FOMC “would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals” of low inflation and a strong labor market.
  • PNC’s current forecast is for one 25 basis point cut in the fed funds rate in 2025, at the last meeting of the year on December 9 and 10. By that point, the inflationary impact of higher tariffs should be fading, giving the central bank more leeway to ease. PNC is then calling for two additional 25 basis point cuts in the fed funds rate at each of the FOMC’s first two meetings of 2026. This would take the fed funds rate to a range of 3.50% to 3.75% by the spring of 2026.

Employment

  • Initial claims for unemployment insurance edged up by 1,000 to 218,000 in the week ending July 26. The four-week moving average of initial claims ending July 26, which smooths out some of the weekly volatility, dropped by 3,500 to 221,000, back down into the lower half of a 213,000 to 240,000 range that had prevailed for the previous eight months, after rising above the top of that range in the first half of June. Initial and continuing claims in the week ending July 26 were moderately below the same week a year ago.
  • Continuing unemployment insurance claims held steady at 1.946 million (revised down from 1.955 in the previous week) in the week ending July 19. The four-week moving average of continuing claims ending July 19 fell by 3,000 to 1.949 million from a slightly revised down 1.952 million in the previous week. These levels are close to 80,000 above the same week a year ago and the highest levels since late-November 2021 – clearly showing that it is taking unemployed workers somewhat longer to find a new job. The insured unemployment rate held steady at 1.3 percent in the week ending July 19, slightly above the same week a year ago.
  • The declining level of initial claims for the past six weeks shows that employers are reluctant to lay off workers, but the large rise in continuing claims in the past eight weeks shows that employers are also reluctant to hire new workers. This combination is a clear sign that the labor market started softening in the late-spring and early-summer months which PNC expects to persist for the rest of this year.

Personal Income and Consumer Spending

  • Personal income increased 0.3% in June from May before adjustment for inflation, with after-tax income also up 0.3%, according to the Personal Income and Outlays release from the Bureau of Economic Analysis. Disposable (after-tax) personal income fell 0.4% in May after rising 0.8% in April due to changes in Social Security benefits. Consumer spending increased 0.3% in June as well.
  • The personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred inflation measure, rose 0.3% on the month, after increasing 0.2% in April and May. Higher energy prices (up 0.9% in June) accounted for part of the acceleration in inflation. But core PCE inflation, excluding food and energy prices, also rose 0.3% for the month, after 0.2% increases in April and May. Goods PCE inflation was 0.4% in June, the largest goods price increases since January, with durable goods inflation of 0.5%; it could be that tariffs are starting to push goods prices higher, contributing to the pickup in inflation.
  • Inflation has slowed dramatically from 2022, when overall inflation peaked at above 7% and core inflation at close to 6%, but it has been hovering at around 2.4% (overall) and 2.7% (core) for a year – stubbornly above the Fed’s 2% objective. And inflation is set to move higher in the near term as importers pass along tariff increases to consumers.

Sources

Economic Update – FOMC Keeps Fed Funds Rate Unchanged; Two Governors Dissent

Economic Update – Initial Jobless Claims Edged Up to 218K in the Week Ending 7/26 and Continuing Claims Held Steady at 1.946 million in the Week Ending 7/19. The Labor Market is Softening.

Economic Update - Slower Growth in Personal Income and Consumer Spending in June; Tariffs May Be Pushing Higher Inflation

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