The Fed Chair Keeps His Cards Close
The headline event of the session was an appearance by Federal Reserve Chair Kevin Warsh at the European Central Bank's annual forum in Portugal. He struck a deliberately cautious tone and refused to signal whether the Fed will raise interest rates at its next meeting. Instead, he stressed that policymakers will only reach that decision after debating behind closed doors, describing the process as one that would involve a "good debate" before any conclusion.
On the state of prices, he reiterated that inflation remains above the Fed's 2% target and characterized it as "still too high." At the same time, he acknowledged that inflation risks have eased in recent weeks. Throughout the remarks he emphasized the central bank's commitment to price stability and its political independence. Markets were hoping for clues on the Fed's next move, but he repeatedly declined to offer any forward guidance, leaving the timing and direction of the next policy step deliberately open.
Washington Loosens Its Grip on Advanced AI
In a notable policy shift, restrictions were lifted on advanced AI models developed by Anthropic, allowing the company to restore access to its Fable 5 model. The change followed weeks of negotiations over national security concerns. The government had originally halted global access to the model after researchers demonstrated that it could be used to identify software vulnerabilities. Anthropic says it has since strengthened its safeguards, which paved the way for access to be reinstated.
The relief is only partial. The more powerful Mythos 5 model will remain limited to a select group of approved US organizations focused on cybersecurity. This underscores the growing degree of government oversight over frontier AI. The decision marks a key moment for the broader AI industry as Washington attempts to balance innovation against national security, all while companies race to build increasingly powerful models. It is also an important development for Anthropic specifically, given that the company is working to time its upcoming IPO.
The Data Behind the Second Half's Start
The opening of the year's second half brought a batch of economic data. The ADP report showed private jobs growing by 98,000 last month, down from May and lower than expected. This figure is watched as a precursor to the official jobs numbers due the following day. Nearly half of the growth came from education and health services, but the report also showed continued broadening across other sectors including trade, transport, and financial services. Mining was the only sector that did not post growth.
Purchasing managers' index data released the same morning showed that the US manufacturing sector continued to expand last month. The ISM survey indicated that growth came off a bit from May but still stayed comfortably above the boom-or-bust line of 50. While the Iran war and price volatility remain worries, the standout detail was relief in the price index, which registered a 9 percentage point drop since May.
Looking Ahead to the Jobs Report
The next major catalyst is the monthly jobs report, which arrives on Thursday because markets are closed on Friday. Economists expect a pullback in June following a large hiring jump in May, but still foresee good news overall for the job market. Projections indicate the economy added about 115,000 jobs, down from 172,000 in May, while the unemployment rate is forecast to hold steady at 4.3%. Average hourly earnings are projected to show a modest month-over-month increase of roughly 0.3%.
Over the past three months, the economy has averaged job gains of about 188,000 per month. However, economists caution that this trend likely overstates the underlying strength of the economy, and they argue the job market would still be in good shape even with an increase of around 110,000 in June. With the ADP preview coming in slightly shy of estimates, there is added curiosity about how the official figures will shake out.
Tesla and the International Picture
Tesla's second-quarter deliveries are also due the next day. The expectation is for a number just south of 400,000, which would be an improvement over the previous quarter. Beyond the headline delivery count, the key focus is on Europe and China and whether continued international strength is offsetting weakness in the US market.
The Takeaway
The session captured a market caught between competing signals: a Fed chair unwilling to commit to a direction, easing but still-elevated inflation, softening but broadening labor data, and a manufacturing sector that is expanding even as price pressures relax. Layered on top is a fast-moving policy story around AI, where national security considerations are directly shaping which models companies can deploy and when. With the jobs report and Tesla deliveries both landing on the final trading day of the week, there is plenty for investors to keep an eye on.
