Officials maintained a cautious stance to fully gauge the effects of President Trump’s economic policies, including tariffs, immigration, and tax changes. While uncertainty around the outlook has eased, it still lingers. The Fed continues to signal two rate cuts this year, with one more 25-basis-point cut projected in both 2026 and 2027. Growth estimates were trimmed to 1.4% for 2025 and 1.6% for 2026, while 2027 remains at 1.8%. Unemployment is expected to stay at 4.5% through 2026. The PCE inflation forecast shows a gradual decline from 3.0% in 2025 to 2.4% in 2026 and 2.1% in 2027.
In the Eurozone, inflation fell to 1.9% in May from 2.2% in April, dipping below the ECB’s 2% target for the first time since September 2024. The drop was mainly driven by services inflation falling to 3.2%, the lowest since March 2022, and a 3.6% decline in energy prices. Non-energy industrial goods inflation held at 0.6%. Food, alcohol, and tobacco prices rose to 3.2% from 3.0%. Core inflation, which excludes food and energy, eased to 2.3%, the lowest level since January 2022.
UK inflation edged down to 3.4% in May from 3.5% in April, in line with forecasts. The biggest drag came from transportation costs, which dropped to 0.7% due to lower airfares and falling fuel prices. A correction in the Vehicle Excise Duty series also revised April figures downward. Housing and household service costs eased slightly. Services inflation fell from 5.4% to 4.7%. On the other hand, food and non-alcoholic beverages rose 4.4%, mainly due to chocolate and ice cream. Furniture and household goods recorded their largest price jump since December 2023. Month-on-month, CPI increased by 0.2%.
In Japan, the 10-year government bond yield fell to around 1.43% as rising geopolitical risks pushed investors toward safe-haven assets. Tensions flared after reports that the US was preparing for a possible strike on Iran, raising concerns of broader conflict in the Middle East. The Bank of Japan left rates unchanged and reiterated its gradual approach to balance sheet reduction. Governor Kazuo Ueda said the bank is closely watching domestic conditions and global trade, and remains open to future rate hikes if needed.
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