NEW YORK, June 13 – The spotlight turns to the Federal Reserve in the week ahead, as investors await critical signals on the direction of interest rates amid mixed economic data. As the U.S. stock market continues its upward trend, questions loom over whether the rally can sustain itself in the face of evolving monetary policy dynamics.
The S&P 500 (.SPX) is on pace for its third consecutive week of gains, approaching a new all-time high after bouncing back sharply since early April. Easing anxieties over global trade and a more stable economic outlook have supported investor confidence, especially following the downturn triggered by President Donald Trump’s abrupt “Liberation Day” declaration on April 2, which initially shook markets.
The upcoming two-day meeting of the Federal Reserve has the potential to influence the short-term direction of the financial markets. While no rate change is expected when the central bank releases its policy decision on Wednesday, traders will be laser-focused on any language suggesting a potential rate cut later this year.
Currently, the federal funds rate sits at 4.25% to 4.50%, following a quarter-point reduction in December. Since then, the Fed has opted for a cautious stance, balancing its dual mandate of fostering maximum employment and maintaining price stability. But with recent data showing signs of both a cooling labor market and lingering inflation, investors are keen to understand which of the Fed’s goals is taking priority.
“The Fed has to walk a very fine line,” said Drew Matus, chief market strategist at MetLife Investment Management. “They need to convince markets that they’re ready to act if needed—without making commitments that could prematurely anchor expectations.”
If the Fed were to cut rates too soon, it risks reigniting inflation pressures, especially without strong evidence that the broader economy is weakening. However, delaying action could weigh on the labor market, where some recent indicators have shown cracks.
At its last meeting in May, Fed officials acknowledged that risks were rising on both inflation and unemployment fronts. This time, market participants will closely examine the Fed’s updated economic projections—especially any changes in unemployment and inflation forecasts. These updates could offer clues on how the Fed views the balance of risks going forward.
One key voice, Larry Werther, chief U.S. economist at Daiwa Capital Markets America, is particularly focused on unemployment projections. The Fed’s March forecast suggested the jobless rate would end 2025 at 4.4%, but Werther believes that figure could move higher in light of softening jobless claims and broader labor trends.
“If unemployment is projected to rise and inflation appears to be under control, that combination makes it more likely that the Fed will ease later this year,” Werther noted. “There’s a growing possibility of a rate cut by the fall, especially if economic data continues to weaken.”
Market pricing currently suggests two rate cuts by year-end, with the next possible move in September. This outlook gained traction following this week’s relatively subdued inflation reports, which hinted that price pressures may be cooling after a prolonged period of elevated costs.
In addition to Fed policy, investors are watching developments surrounding the next Federal Reserve Chair. President Trump has indicated that he plans to name a replacement for current Federal Reserve Chair Jerome Powell, whose term term ends in May 2026. Though the president has criticized Powell in the past for not lowering rates aggressively enough, he recently confirmed he does not intend to remove him before the end of his term.
Beyond the Fed, other events could also influence market sentiment in the coming days. Monthly retail sales data, due Tuesday, will be scrutinized for any signs that recent tariffs and global trade tensions are impacting consumer behavior. If tariffs are causing prices to rise, that could strain household budgets and weigh on consumer spending, a key driver of the U.S. economy.
Another major development investors are monitoring is the temporary halt on a broad range of U.S. tariffs, set to expire on July 8. The 90-day pause had initially calmed markets, but its impending conclusion raises uncertainty. A recent truce between the U.S. and China on trade sparked cautious optimism, though the lack of detailed terms means tensions could flare again.
Despite these risks, market momentum has remained strong. The S&P 500 is up nearly 3% so far in 2025 and has surged more than 21% since hitting a low on April 8. The index now sits just 1.6% below its all-time high set in February.
However, some analysts warn that the market’s steep climb has left it vulnerable to any disappointment. “The rally has been rapid and powerful,” said Marta Norton, chief investment strategist at Empower. “That kind of momentum builds a narrative that everything is fine—but it also creates risk if anything unexpected emerges to challenge that view.”