The Market Update with EP Wealth Advisors Managing Director, Investments -
Adam Phillips, CFA^®, CAIA, CFP^®

Often quoted in major national media, Adam is a Chartered Financial Analyst (CFA^®), a CERTIFIED FINANCIAL PLANNER™ (CFP^®), and has been included on the Forbes NextGen Best-in-State Wealth Advisors 2019 list. He is a member of the CFA Society of Los Angeles and the CFA Institute. Adam helps establish asset allocation strategy as a member of the EP Wealth Investment Committee, which supports all EP Wealth Advisors and their clients. The Committee’s top-down approach to portfolio construction begins with an outlook on the economy’s likely direction, followed by the implications for different economic sectors and asset classes. This culminates in strategic selection of the individual stocks, bonds, mutual funds or other investments deemed most appropriate for each individual client’s portfolio.

Market Update: Inflation Appears Tame, But Underlying Pressures Emerge

Mixed Inflation Signals and Fed Leadership in the Spotlight 

The June Consumer Price Index (CPI) report brought mixed news for markets. While overall inflation appeared moderate—marking the fifth consecutive month of softer-than-expected core readings—some specific consumer categories showed surprising strength. Core goods excluding autos, which are more susceptible to import costs and tariffs, posted their largest price increases in years. 

Notable month-over-month price jumps included: 

• Men’s shirts and sweaters: up 4.3%
• Floor and window coverings: up 2.2%
• Laundry equipment and other appliances: up approximately 2.0% 

These types of increases typically appear in year-over-year comparisons, making their monthly rise especially noteworthy. As tariff-related uncertainty persists, these sectors may offer an early indication of renewed inflationary pressure. 

Despite the overall benign tone of the report, the Federal Reserve is expected to hold steady at its next meeting later this month. However, markets were briefly rattled by reports that President Trump was considering replacing Fed Chair Jay Powell. Although the administration walked back the claim, the episode sparked volatility across asset classes: bond yields rose, the dollar weakened, and equities declined. 

Historically, presidents have expressed frustration with monetary policy behind closed doors, but this level of public scrutiny and potential intervention is rare. Removing a Fed Chair without cause could lead to legal challenges and erode confidence in the Fed’s independence—possibly pushing inflation expectations higher. 

While certain areas of the economy—such as housing and lower-income households—might benefit from lower interest rates, current economic indicators suggest the overall environment remains resilient. Until more definitive signs emerge, the Federal Reserve is likely to stay the course and avoid aggressive policy shifts. 

As inflation trends and central bank independence remain in focus, markets are expected to respond swiftly to any new developments. Investors should stay alert as this dynamic unfolds in the coming weeks. 

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Video Summary: 

Adam Phillips: [00:00:00]

So last week's big economic release was the June report of the Consumer Price Index, our monthly read on inflation. This report was, I would say, fairly benign and on on the top line. Came in. Pretty favorable, I would say. And a lot of investors we're, we're happy to see that the number was actually a bit softer, uh, than expected.

In fact, it was the fifth month in a row where consumer prices, uh, at least core, meaning if you strip out the food and energy prices came in below expectations. That goes against what a lot of people were expecting, certainly with, with things like tariffs going on and the threat of higher prices. So far we haven't seen it, at least on, on the whole.

If you dig into this number a little bit more closely though, you are starting to see some potential signs of inflationary pressures. So one area that I was focused on last week is what we call core goods, excluding autos. And so this is really just goods, prices, [00:01:00] those areas of the economy. That, uh, are going to be more impacted by tariffs.

You do see a lot more imports here. So we did actually start to see that this number came in, uh, at the highest level in a few years. So this is something that we do wanna keep an eye on going forward. It, it does suggest some signs of inflationary pressure really just to, um, to tell you a little bit more what is in this category, and it is a broad one.

Because of that I need to refer to my cheat sheet, but just some things that I wanted to point out here. So men's shirts and sweaters up 4.3% in price level on a month over month basis. That's a big move. That is not an a year over year move. That is month over month, so that is something to keep an eye on.

Floor and window coverings up 2.2% on a month over month basis. Again, that's the number that you would normally see on an annualized basis. That was just month over month. Another one I'll point to is laundry equipment and, and other appliances up around [00:02:00] 2% month over month. So these are the things that we're watching.

We wanna continue to keep an eye on in, uh, moving ahead because this could be some potential. Finally, some, uh, some signs of inflationary pressure on the economy as a result of tariffs and the uncertainty related to them. So for the Fed, the way that they're interpreting this is, I, I think that e, even though that overall report was benign, there's enough there to concern them and keep them on the sidelines for a little bit.

The next FOMC meeting is at the end of this month, uh, very late July. I expect them to remain on hold. And I expect that, uh, that posture to remain at, at least for some time, and this is not going to please President Trump or those within the administration who really want the Fed to get going here and start cutting rates.

In fact, moving to the other topic I wanted to cover, last Wednesday, we saw that President Trump, uh, there was actually news floating that President Trump was preparing to get rid of Fed [00:03:00] Chair j Powell, and that, that really caused some havoc in the, in the markets there. Uh, on, on the initial, uh, reports.

He eventually walked that back and suggested that wasn't actually something he was considering. But we know that things can change very, very quickly these days and certainly within the administration. So it's something that we wanna keep an eye on, and I think that there is still some pressure there.

And Jay Powell, his job is still under threat. He's still going to be, uh, challenged and, and second guessed with, uh, uh, with regards to what he's doing or not doing, uh, in his leadership role at the Fed. So for us, I, I'll just say very clearly, we do not want him to, to go away. His, his term as fed chair is going to, uh, to expire May next year anyway.

So I think that President Trump would be better off just leaving him in place announcing that eventual replacement or nominating that replacement, uh, in a few months time. Usually you see the replacement nominated. [00:04:00] Between four or five months before the, the next term actually begins. So President Trump has some time.

He's already looking at some candidates. We've seen some names floated out there as as potential replacements. So, yeah, I think that it's really best for markets, uh, to leave him in place. If we saw, uh, Jay Powell removed from, from the Fed, he needs to be removed, uh, for cause. And if, and if there's a challenge there, then we could see this really get hung up.

There could be lawsuits, but the reaction would not be good for, uh, from, uh, the market perspective. Even on the news last Wednesday, we saw that bond yields rose, um, and uh, short-term rates came down. Long-term rates went up, and that is what we refer to as a, as a yield curve. Steeper something that we're not too surprised of because if you're getting rid of someone who doesn't wanna cut rates, potentially replacing with them, with someone who does want to cut rates, that brings short term interest rates down on expectations of lower rates, and it moves.

Long-term rates higher on the [00:05:00] expectation that that easier monetary policy would cause inflation. And the other impact that, that we would likely see, uh, is a falling dollar. And sure enough, we saw the dollar decline, uh, on these reports. We saw equity prices fall. And so if President Trump actually followed through with this.

Then those are the types of, uh, of, uh, that, that's the type of impact we would expect in the markets. And so we're certainly hopeful that, that he won't do anything like this. But again, we need to watch this very, very closely going forward. This obviously with inflation. So top of mind right now, we are watching ex uh, inflation expectations very, very closely.

And if you threw in a new fed chair and, and one that felt, um, that was perhaps under the influence of the administration. Then, uh, that, then I, I expect that we would see inflation expectations move a lot higher because just the, the, the idea that lower interest rates would provide some support to the economy when it might not necessarily need it.

[00:06:00] And so inflation expectations would move higher. And to be clear, there are certain areas of the economy that, that would benefit from rising rates, or, excuse me, from declining rates. The housing market's, certainly one of them, um, that is, uh, is struggling quite a bit. And, and then the other area is, is those lower income households.

We've seen delinquencies move higher. We know that this is what we call a k-shape economy. One, uh, that's, uh, where we discern between the haves and the have nots. Those that aren't fortunate enough to, to see their, their net worth rise because they own real estate or because they own stocks, uh, are, uh, are not, uh, doing quite as well in this, uh, in this economic backdrop.

And so there, there certainly would be some positives, but the economic data so far has shown that the economy's in good shape. We've seen a lot of resilience. So it doesn't necessarily suggest the Fed needs to come in and, and rush to support the economy just yet, especially with inflation still being a, a big question mark here.

So that's where we [00:07:00] currently stand. I will just note that, uh, in case anyone's wondering. President Trump is no different than any other president. In the past, every president has wanted lower interest rates. The Fed is, is independent for a reason. Um, but we've certainly seen that the President Trump is not unique in this way.

I think it's, it's. Perhaps maybe a little bit, uh, unique that he's doing this publicly. Um, but, uh, but his feelings and, and uh, desire for lower interest rates is certainly not unique. We've actually seen in the past, we've seen President Nixon, um, put some pressure. On, uh, on then Fed Chair Arthur Burns, uh, for, for lower rates and, and a more accommodative policy.

Uh, there's a very famous example for those of us that follow it, uh, with, uh, Lyndon b Johnson, summoning, then fed chair William Martin to his ranch in Texas, and actually physically assaulting, uh, him and, and pushing him into a wall to get him to, uh, [00:08:00] provide more accommodative monetary policy. So these things are done.

Just, uh, not, uh, at, at the, um, uh, at, at the scale and, and in public view usually. So, um, I, I, I think that is important to, uh, to point out. But anyways, uh, I'm gonna leave it there for now. I, I do wanna just mention the fact that I will be gone next week on vacation. I'll be back the following week. I'm hoping that everything, uh, stays, uh, that the market, um.

Cooperates with me while I'm gone, that it continues to, to remain near these, uh, near these record high levels. We see some progress on, uh, the trade front, around new trade agreements. We come back and we see that, uh, Jay Powell is still in his seat as as fed chair. Um, but I'll, I'm sure that I'll have plenty to update you on when I do return.

I'll look forward to doing that. Until then, please reach out to your financial advisor with any questions.