Is the economy slowing… or not?

That’s the question the Fed is trying to answer, and the market isn’t exactly making it easy.

At last week’s Fed meeting, officials decided to hold interest rates steady once again. But behind closed doors, the conversation wasn’t so clear-cut. Some members are ready to cut rates soon, citing signs of economic weakness. Others are urging patience, pointing to still-elevated inflation and stock market highs as reasons to wait.

This divide at the Fed mirrors what we’re all feeling right now: conflicting economic signals.

Unemployment Uptick + Major Revisions = Time to Pay Attention

Yes, the headline unemployment rate rose to 4.2%, a level we’ve seen a few times over the past year.

But here’s what matters more:

The Labor Department revised May and June job gains, which are now down by 258,000 jobs, the largest two-month revision in more than a decade (excluding the COVID crash in 2020).

That’s a big deal.

Why? Because the Fed relies heavily on this data to guide policy. And when those numbers change in hindsight, it can shift the entire decision-making framework.

We’re not in a jobs crisis. But the labor market clearly isn’t as strong as we thought. And that softening could eventually push the Fed toward cutting rates to avoid tipping into a full-blown slowdown.

What the Bond Market Is Signaling

One area economists and analysts often watch is the relationship between short-term interest rates and the federal funds rate.

Currently, the 2-Year Treasury yield is below the Fed Funds Rate, a dynamic known as a yield curve inversion. This has historically been associated with periods of economic slowdown or recession, though not always.

Inversions like this have occurred:

• In the early 2000s (preceding the dot-com recession)
• Before the 2008 financial crisis
• In 2019, prior to the COVID-driven downturn
• And more recently, in the current 2023–2025 period

While past inversions have sometimes preceded recessions, they are not definitive predictors on their own.

What does this mean for investors?

It suggests that the bond market may be pricing in slower economic growth and potentially anticipating a change in Fed policy. But as always, there are many moving parts, and no single indicator tells the full story.

Meanwhile, Stocks Keep Climbing

Despite all this, the stock market is rallying.

Much of that optimism is tied to the belief that rate cuts will arrive later this year. And as usual, markets aren’t waiting for confirmation; they’re pricing in expectations now.

For retirees and those approaching retirement, this is a moment to pause and reassess:

• Are you positioned for continued volatility if growth slows or inflation flares up again?
• Does your portfolio still align with your income needs and time horizon?
• Do you have enough cash reserves in case markets get bumpy before the Fed pivots?

The Bottom Line

The Fed is stuck between two realities: sticky inflation and a softening economy.

Markets are moving on hope. But the recent unemployment revision, the biggest in a decade, casts doubt on the strength of the labor market. That could be enough to sway the Fed toward action in the coming months.

Whether they cut or not, your retirement plan shouldn’t depend on what the Fed does next.

It should be built to weather both rallies and pullbacks with confidence.

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​Keeping wealth in focus,

The MY Wealth Management Team