While the White House and the Federal Reserve are in wait-and-see mode, the market has also decided to hold steady. Donald Trump has yet to make a final decision on whether the U.S. should intervene in the Israel-Iran conflict. Meanwhile, the Fed wants more data on the economic impact of tariffs before making any definitive rate decisions. The stagflation scenario outlined by the central bank clearly unsettled the S&P 500. The broad stock index has retreated—but calling it a "sell-off" would be an overstatement.

The Fed lowered its 2025 GDP growth forecast from 1.7% (March) to 1.4%. In 2024, the economy expanded by 2.4%. At the same time, it raised its projections for inflation, from 2.7% to 3%, and for unemployment, from 4.4% to 4.5%. The central bank does not know how tariffs will ultimately impact the economy and prefers to leave its options open. It will act accordingly depending on which side of the Fed's dual mandate becomes more concerning—rising inflation or deteriorating labor conditions. If inflation surges, rates will remain unchanged; a new monetary easing cycle could begin if unemployment rises.

FOMC Rate Projections

Although the median FOMC projection for the federal funds rate remained unchanged, seven committee members now see no rate cuts in 2025—up from four in March. Keeping borrowing costs high at 4.5% is negative for the economy and the stock market. Unsurprisingly, the U.S. President did not take the Fed's June verdict lightly.

Trump called for an immediate rate cut of 1 to 2.5 percentage points and labeled Jerome Powell a fool. He emphasized that he had already collected $88 billion in tariffs, with no rise in inflation. So why should the Fed maintain a pause? The Republican candidate is confident he could do a better job than the current Fed Chair. Sarcastically, he even asked whether he could appoint himself to the position.

Trading Volume Dynamics for U.S. Equities

It's evident that Trump is unhappy with the decline of the S&P 500. During his first presidential term, the stock market was seen as a barometer of his administration's effectiveness. There's little reason to think this perspective has changed. The market continues to react sharply to Trump's comments, which can trigger significant volatility—especially during the typically quiet summer season.

Ironically, U.S. involvement in the Middle East conflict could support the S&P 500. In such a scenario, the likelihood of Iran capitulating would rise, reducing the chance of Tehran blocking the Strait of Hormuz. A drop in oil prices would lessen inflationary pressures in the U.S. and might push the Fed toward monetary easing—a positive development for equities.

Technical Outlook for S&P 500

On the daily chart, recent attempts by the bulls to mount a counterattack have failed. This highlights weakness on the buy side and opens the door to short positions targeting the fair value around 5900 and the key pivot level at 5800.