June 2025 — Confidence Returns Amid Tariff Pressures

June 2025 presents an interesting mix of emerging supply-side pressures and renewed consumer optimism. Headline inflation rose by 0.3% to 2.7%, while core inflation increased only slightly, by 0.1%. This pattern confirms the signs we expected from the previous month: the rise in prices is largely driven by supply-side shocks, particularly tariffs. Unlike core inflation, which reflects underlying demand, the jump in headline inflation points to imported goods and commodities pushing prices higher — a phenomenon the Fed itself has acknowledged.

The labor market continues to perform well. Unemployment ticked down by 0.1%, staying close to the natural rate, signaling that the economy is maintaining strong employment even amid these supply pressures.

On the sentiment side, June was a bright month. Inflation expectations fell by 0.2%, suggesting that households are becoming less worried about persistent price pressures. Meanwhile, the Consumer Confidence Index rebounded from 52.2 to 60.7. This aligns with the pattern we predicted: after several months of recalibrating their outlook based on actual economic conditions, consumers are starting to regain certainty and potentially resume spending. Indeed, personal consumption expenditures grew by 0.3%, reinforcing the idea that confidence is translating into activity.

Overall, June strikes a balance between caution and optimism. The economy shows continued strength with low unemployment and steady core inflation, and households are starting to trust the data rather than narratives. The one cautionary note remains the tariff-driven spike in headline inflation, which could pose a risk if it accelerates further. For now, though, the month is notable for restoring some calm and certainty, both in consumer expectations and confidence, suggesting that aggregate demand may gradually pick up again.