3 Things You Need to Know This Week | Fed Meeting, US Q2 GDP, Eurozone Inflation

Transcript

Andreina Mundarain:

Hello and welcome to Three Things You Need to Know This Week, our regular series designed to help you sift through the noise across financial media and understand what really matters for markets. To stay up to date with our latest market insights, subscribe to our YouTube channel or visit FisherInvestments.com. And with that, here are three things you need to know this week.

First, the Fed's interest rate decision.

On Wednesday, the US Federal Reserve holds its July monetary policy meeting, and members will decide whether to adjust the federal funds rate. That rate currently sits at 3.5% to 3.75%. A rate move at this meeting isn't expected, but investors will be watching closely for clues about what comes next. Officials on the Federal Open Market Committee remain divided, with some predicting rate cuts in the back half of the year, while others predict no change or even rate hikes. This ties back to the Fed's eternal dilemma, caught between trying to manage inflation while supporting the labor market and broader economy. Another factor worth noting is how the Fed might respond to the recent escalation  in the Middle East. Many are comparing today to the combination of high oil prices and high inflation in the 1970s and, more recently, in 2022. If the Fed sees high energy prices as likely to cause sustained high inflation, it may feel compelled to act. In that scenario, monetary policy errors are possible, and we'll be monitoring that risk closely. Importantly, the high inflation seen in these periods coincided with relatively high money supply growth, which is absent today. Remember, monetary policy is just one of many factors influencing markets. Rate moves grab plenty of attention, but they're rarely make-or-break for stocks.

Next, US Q2 GDP.

On Thursday, the Bureau of Economic Analysis will publish its first estimate for US second quarter 2026 GDP. After initially missing expectations, last quarter's GDP was revised upward, showing economic activity ran a bit stronger than initially reported. That revision largely reflected two things: Stronger business investment and a smaller drag from trade than initially estimated. Now, the revision wasn't all positive. Consumer spending was revised downward, but even as households pulled back a little, businesses kept investing. The question now is whether this momentum continued in Q2 and, more importantly, whether it can continue going forward, especially with renewed tensions in the Middle East that have the potential to stoke consumer and investor fears. For investors, the key reminder is that GDP looks backwards while stocks look ahead. What happened in Q2 is likely already reflected in share prices. Markets have moved on. They're focused on where growth goes next, not where it was last quarter. And remember, data can swing up and down on a monthly or quarterly basis, and those moves often grab plenty of headlines, but that kind of volatility is normal even during a bull market. The overall trend is what matters most for stocks. And, most importantly, how that trend compares to expectations. So, when Thursday's numbers land, don't overestimate their importance. Stay focused on the broader direction and remember to put the data in perspective.

Finally, eurozone inflation.

On Friday, the eurozone releases its initial estimate of July inflation data. Recall June eurozone inflation rose 2.8% year over year. That was in line with what analysts predicted, and a slight decrease from May's recent high of 3.2%. The question on everyone's mind is, "How will the energy price spike, driven by the conflict in the Middle East, show up in July's numbers?" Energy costs are often the most visible prices consumers face. And, while these spikes are genuinely painful in the short term, it's worth remembering that they're often temporary. For context, the last time energy prices faced similar upward pressure was in 2022, following the escalation of the Russia-Ukraine war. Oil prices peaked at $133 per barrel shortly after Russia's invasion, but within six months, prices returned to pre-invasion levels. Natural gas prices, which hit Europe especially hard, followed a similar path. This demonstrates how quickly energy prices can normalize, even while geopolitical tensions drag on. Another key point to consider is that energy accounts for only about 9% of eurozone inflation, which limits how much it can move the headline number. So, while rising gasoline and energy costs may grab headlines, their influence on the broader inflation rate is more constrained than many realize. For investors concerned about inflationary pressures, history offers a reassuring perspective. Stocks have consistently proven to be a reliable hedge against rising prices. Over the long run, they've averaged returns of around 10% a year, far outpacing inflation's typical 3% rise. By owning stocks, you can help offset inflation while improving your odds of reaching your long-term financial goals.

And that's it for this episode of Three Things You Need to Know this Week.

For more of our thoughts on markets, check out This Week in Review, released every Friday. You can also visit FisherInvestments.com. Thanks for tuning in and don't forget to hit Like and Subscribe.