Busy News Week Causes Market Volatility…

Last week delivered several market-moving developments for investors, led by Federal Reserve policy, inflation data, technology earnings, and ongoing U.S.–Iran negotiations.

On Wednesday, the Federal Reserve announced its second interest-rate decision under the leadership of its new Chair, Kevin Warsh. Despite hotter-than-expected inflation reports, the Federal Open Market Committee voted to leave the federal funds rate unchanged. The decision was not unanimous with three committee members dissenting in favor of a rate increase. The split vote underscored concerns within the Fed that inflation may be proving more persistent than policymakers anticipated.

The week also brought the release of the Fed’s preferred inflation measure, the Personal Consumption Expenditures Price Index. Headline PCE inflation declined to 3.7% from 4.1% in May, while core PCE was broadly in line with expectations at 3.3%. Although the data showed modest improvement, both measures remain well above the Fed’s 2% target. Chair Warsh emphasized that restoring price stability remains the central bank’s primary objective and that incoming inflation data will continue to shape future rate decisions.

Investors also gained insight into the economics of the artificial-intelligence buildout as the major hyperscalers reported earnings. Concerns remain over the enormous capital expenditures required to expand AI infrastructure, but the results confirmed that demand for AI-related services remains strong. Amazon, Microsoft, and Alphabet showed that their AI investments are increasingly contributing to revenue and earnings growth which helped restore confidence in the AI trade. Meta’s results, by contrast, fell short of investor expectations and generated a sharp negative response by the market. This divergence suggests that investors are becoming more selective and rewarding only those companies that demonstrate measurable returns on their AI spending.

Finally, markets remain sensitive to developments in U.S.–Iran relations. Reports that a draft framework for a potential agreement is circulating among the negotiating parties prompted equities to move higher. However, optimism remains cautious, as similar reports of diplomatic progress have surfaced and faded before. Until an agreement is finalized, geopolitical headlines are likely to remain a source of volatility.