Macro

The U.S. Supreme Court is poised to rule on the Trump administration’s attempt to remove Federal Reserve Governor Lisa Cook, a case widely seen as a key test of the central bank’s independence. At the same time, Fed Chair Kevin Warsh is set to make his global debut at the European Central Bank’s forum in Sintra, Portugal, outlining a shift away from explicit rate forward guidance. Warsh has said policy decisions will be driven by incoming data, as markets increasingly price in possible rate hikes even as Trump continues to call for cuts.

Markets are pricing a 77% chance that the Federal Reserve will raise rates by at least a quarter point by the end of the year, driven by higher oil prices linked to the U.S.-Israeli war on Iran and AI-related chip shortages that are lifting electronics costs. Citi Research’s Andrew Hollenhorst disputes that view, arguing the oil market has swung from shortage to surplus, core CPI could slip below 2.5% by August, and payroll growth may cool starting with the June jobs report. Brookings senior fellow Robin Brooks also downplayed the Fed’s hawkish messaging and said the June CPI release on July 14 could shift expectations back toward cuts.

FedEx executives said freight demand has not shown any “demand destruction” in the latest earnings call. The company reported strong revenue growth in the most premium segments of the global economy. They also pointed to inventory rebuilding and early time-critical shipments turning into repeatable revenue streams as signs of steady customer spending. FedEx added that AI and data centers are emerging as a rapidly scaling growth engine, delivering double-digit revenue growth.

The U.S. Supreme Court is expected to rule this week on President Donald Trump’s attempt to dismiss Federal Reserve Governor Lisa Cook, a case that for the first time tests the legal limits of the Federal Reserve Act’s “for cause” removal standard. Lower courts have already paused the dismissal, allowing Cook to remain in her role while the case proceeds. If the court upholds strong tenure protection for Fed governors, it would reinforce the Fed’s policy independence and reduce the risk of political pressure on rate decisions. With inflation running hotter than expected and markets weighing the possibility of rate hikes, the ruling could shape policy credibility and how investors price the interest-rate path.

New Federal Reserve Chair Kevin Warsh signaled at least one interest-rate increase before the end of 2026, using a six-word remark that markets read as a policy shift. U.S. equities sold off, with the S&P 500 down 1.2% and the Nasdaq Composite down 1.3%. President Donald Trump said higher rates were “hard to believe” and complained they “keep a country down,” while still voicing confidence in Warsh as his pick. The comment was treated as a clear turn in policy expectations and sparked short-term pressure on stock indexes.

U.S. two-year Treasury yields fell on Friday as oil prices dropped on rising shipping volumes through the Strait of Hormuz. The move boosted expectations that inflation pressures could ease. Traders lowered the odds of additional Federal Reserve rate hikes this year, even as some policymakers struck a hawkish tone.

Federal Reserve officials Austan Goolsbee and John Williams said inflation remains well above the central bank’s 2% target, even as some services-price measures have shown modest improvement. Data showed core PCE inflation rose 3.4% year over year in May, its highest reading since October 2023, while headline PCE reached 4.1%, with higher energy prices during the recent Middle East conflict contributing to the increase, according to Reuters. They said the current policy stance remains appropriate and did not signal an imminent rate cut. Markets have priced in about a 30% chance of a rate increase at the Fed’s July 28-29 meeting.

BMO Chief FX Strategist Mark McCormick said a stronger U.S. economy and expectations that the Federal Reserve could raise rates as early as September, or even July, are lifting the U.S. dollar and weighing on the Canadian dollar. He added that as central banks scale back forward guidance, markets are becoming more data-dependent, reinforcing demand for the greenback. McCormick said the loonie could slide to around 69 U.S. cents, according to BNN Bloomberg.

The dollar weakened against major currencies on Friday as markets scaled back expectations for further Federal Reserve rate hikes, a shift shaped by recent economic data and lower oil prices. Even so, the greenback was still set to end the week higher and log its strongest monthly performance since July 2025. Inflation gauges came in as forecast, while falling energy costs helped slow the pace of expected European Central Bank tightening even as the Fed was still seen raising rates.

Most economists expect the Federal Reserve to keep interest rates unchanged for the remainder of 2026, contrary to market pricing for two rate increases, according to a Reuters poll. Inflation is running above 4%, well above the Fed’s 2% target, with President Donald Trump’s broad import tariffs adding to price pressures. New Fed Chair Kevin Warsh has put restoring inflation to 2% at the center of the central bank’s priorities, with less emphasis on the labor market and a move toward less explicit forward guidance.