Brian Pietrangelo [00:00:02] Welcome to the Key Wealth Matters weekly podcast where we casually ramble on about important topics including the markets, the economy, human ingenuity, and almost anything under the sun, giving you the keys to open doors in the world of investing. Today is Friday, June 20th, 2025. I'm Brian Pietrangelo and welcome to the podcast.
Yesterday, on June 19th, we celebrated the abolishment of slavery in the United States, and again, June 19 is a combined word that gets you to Juneteenth, and it was celebrated back on June 19th of 1865. That was two and a half years after President Abraham Lincoln declared it on January 1st of 1863 in the Emancipation Proclamation. It's now known as a federal holiday each June 19.
In addition, today on June 20th for 2025, we acknowledge and recognize the summer solstice, which is known as the longest daylight period in the day during the entire year. It is based on the Earth's rotation and the tilt of the Earth being the strongest towards the sun and we celebrate it as the official beginning of summer. So get out there and celebrate as much as you can and put those sunglasses on so you don't get blinded by the light.
With that, I would like to introduce our panel of investing experts here to share their insights on this week's market activity and more. George Mateyo, Chief Investment Officer, Cindy Honcharenko, Director of Fixed Income Portfolio Management, and Joe Velkos, National Tax Director of Key Wealth. As a reminder, a lot of great content is available on key.com/wealthinsights, including updates from our Wealth Institute on many different subjects, and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor.
Taking a look at this week's market and economic updates, there were only two economic releases for us this week, pretty light week, but we'll give them to you as an update. The first was retail sales from May of 2025 came in at down 0.9% from the previous month. In addition, April's numbers were adjusted from a positive one-tenth to a negative one-tenth. Now this is the first time retail sales fell in two consecutive months since the end of 2023. However, there is some tiny bit of silver lining given that if you go back to March of 2025, the number was very robust at a positive 1.5% month over month. Now we anticipate that this came into play with regard to pre-tariff buying and consumer behavior to get in before maybe tariffs came in on the front with President Trump's Liberation Day. That being the case, it was pretty strong. So it's not that surprising to see a little bit of a reversion to the mean with a of downside here in May, what we will do is we'll look forward to June and July to see if this is a trend in the right direction or the wrong direction with regard to overall consumer spending.
And the second update is industrial production, which came in at a decrease of minus 0.2% in May after being up one tenth of a percent in April and falling two tenths in March. So we've got a little bit of a vacillation going on in the manufacturing side of the economy with regard to industrial production. In addition, we had the Federal Open Market Committee meeting on Wednesday of this week, and the Fed's decision, so we'll definitely get a recap from Cindy and also some commentary from George, as well as our normal economic and geopolitical outlook from George as well. So with that, Cindy, we'll turn it to you for an update on the Fed. What the Fed do, what the Fed say, and what are the implications for the future?

Cynthia Honcharenko [00:03:54] So the Federal Reserve kept the federal funds rate unchanged at a target range of four and a quarter to four and half percent. This was a unanimous decision and the fourth consecutive meeting in 2025 without a rate cut. Looking at the changes to the summary of economic projections, the GDP growth median for 2025 was lowered from 1.7% in March to 1.4% at the June meeting. Total PCE inflation is expected to reach 3% by the end of 2025, which is up from 2.7% in the March SEP. Core PCE Inflation, which excludes food and energy, is forecasted at 3.1% for 2025. That's a notable increase for March's 2.8% projection. Looking at the unemployment rate, that projection was raised to 4.5% from 4.4% in March. The labor market is expected to weaken modestly with an uptick to unemployment in both 2025 and 2026. Looking at the federal funds rate, the median FOMC forecast sees two 25 basis point cuts in 2025 with the federal fund's rate ending the year in the 3.75% to 4% range. However, there's marked divergence. There were seven of 19 members at this meeting that expect no rate cuts in 2025 that's up from four at the March meeting. Eight members expect a total of 50 basis points of cuts, and two members see only 25 basis points in cuts.
So the key takeaways from the summary of economic projections are growth is slowed, but inflation stayed elevated, including core inflation, and that prompted the upward revisions. Unemployment is expected to edge up modestly. Rate cuts are still expected in 2025, but the projections show more uncertainty and a growing number of policymakers are now not forecasting any cuts.
So what is the likelihood of Fed cuts later this year? The markets and analysts are assigning a moderate to high likelihood of Fed rate cuts later this year, though the timing and certainty remain in flux. Fed Fund Futures is now pricing in a 64% probability of the Fed cutting rates by 25 basis points at the September 16 and 17 meeting. This is up from roughly 58% prior to the June meeting. Futures also show a decent chance of another cut in October. Traders’ aggregated bets suggest a 75% plus probability of at least two 25 basis point cuts by year end 2025, with about 44% odds for three rate cuts.
Finally, the key takeaways from the press conference are the labor market remains strong and is not fueling inflation. Chair Powell described the labor market conditions as broadly in balance with low unemployment and steady wage growth. He saw no signs of overheating from wages. Tariffs pose a serious upside risk to prices, which will likely intensify this summer. The Fed plans for two rate cuts in 2025, but remains cautious and data-dependent. Powell confirmed the Fed is positioned to respond as needed. There's also a renewed call for maintaining robust economic data collection. Powell expressed concerns about potential cuts to government economic data collection, warning that this could impair the Fed's ability to accurately assess the economy. Overall, I think the tone was measured, vigilant, and resolutely independent. George, I'd be interested to hear your observations from this week's Fed meeting.

George Mateyo [00:08:02] Well, hi, Cindy, I think you nailed it overall in terms of the big takeaway with respect to the kind of that behind the dots, if you will, or the maybe the different policymakers decisions and thought about where interest rates might be going. Noting that there's probably a greater dissension within the Fed now than there was just a month ago or a few months ago. I should say about where they think policy rates are going, noting that, as you said, four people, I think, thought last time there should be no cuts this year. Now there's seven people that think there should have been no cuts this year, so we definitely have some division, I guess, inside the committee, which is not a bad thing necessarily. Oftentimes, I think that leads to a better outcome if you've got more discussion, but it does kind point to the fact that the Fed, I think, is still somewhat confused and for good reason, right? So really, to the surprise of nobody, the committee decided to kind of keep rates unchanged. There's a tremendous amount of uncertainty regarding just tariffs alone, and this was the first time they actually updated their forecasts and their projections after the president's policies were put forward. So it does provide some signal about how they're thinking about this. And I think there was probably some hope, I think, coming into the meeting that the Fed would probably focus more on the labor market. But they seem to kind of tilt ever so slightly towards the inflation outlook, which again, suggested, as I said earlier, that there's probably more of a propensity to keep rates and change versus probably trying to cut rates in anticipation or maybe in response to some ongoing weakness in the labor market.
And that's the key thing, I think, for me to watch going forward is that I don't see the Fed really cutting rates of growth in the near term because there's so much uncertainty related to tariffs and inflation and so forth. But if there is, of course, a major downturn in the economy, I would think the Fed would have to probably intervene pretty quickly. And I think again, the labor market is probably, in my view, probably should be their primary focus of concern in the sense that we've seen now announcements regarding layoffs start to increase. We've seen some moderation in wages. We saw this week again that the number of people that are seeking continued unemployment insurance kind of crest around cycle highs. They're not breaking out to the recession levels yet be sure. But we've seen some kind of elevated readings on that side too. As Brian noted, we've also seen some weakness now in retail sales, things like manufacturing, homebuilder sentiment, and so forth, things at the margins are clearly kind of slowing a little bit and cooling at the same time. The Fed is kind of on this waiting seat right at the trajectory on the near term. So I hope they don't view this as a time to be overly passive. And I think for investors, I think it's fair to say that we should anticipate probably a wider range of outcomes than usual, given the heightened state of uncertainty overall that's really kind of underlying the economy overall. I guess in the other news this week, it kind of suggests that maybe there's some posturing in respect to the new Fed share, who might that actually be to succeed Jay Powell. Do you have any thoughts on that in terms of who might actually be the frontrunner at this point, or is it too early to say?

Cynthia Honcharenko [00:10:57] I think it's too early to say, George, I don't see Powell going anywhere, even though the president has been very critical of his performance so far. I know he was pretty critical of performance during his first term as well, so nothing new there. I think Powell's going to just continue out his term until next May and then switch to just a member. As I think his term ends in 2027 officially, but it'll be interesting to see who the next Fed chair will be and how much influence the president will have in that person being appointed.

George Mateyo [00:11:44] For sure, I think you're right about that, Cindy. I think there probably is still some risk that he might announce Powell's successor earlier than normal, and that could create a little confusion for the marketplace at the same time that we're looking for clarity. I think Chris Waller actually deserves a considerable mention, though, in my view, in the sense that he's a current Fed governor, and I think he's been out more recently speaking about the ongoing softness of the labor market. And more than anything else, I think, he's actually demonstrated a fair amount of dexterity in terms of his approach to policy relative to others, in the sense that, he was quick to point out that inflation was a concern in 2021 or 2022, I believe. And then he was also one that could suggest that maybe that the Fed wouldn't actually kind of cause a recession. So he was actually in the soft landing camp while it was still pretty unpopular. So we'll see. That's just my little quick kind of unsolicited opinion. We'll have to see what happens. I guess we'll just have to wait and see as the Fed wait and sees as well.

Brian Pietrangelo [00:12:39] Well, thanks Cindy and George for that commentary on the recap of the Fed's meeting this week. Now, let's turn back to you, George, and what are your thoughts on what's happening in the overall geopolitical environment here at home and everything else regarding the economy and the markets?

George Mateyo [00:12:54] I think the biggest source of uncertainty, stating the obvious, of course, is the situation in the Middle East again. And nobody really knows what's next. There's a lot of game theory that could be applied to this, but frankly, there's just so much uncertainty, it's hard to really know what to do. But I do think that investors need to be patient. Often events like this are somewhat short-lived, meaning that they do resolve themselves in a matter of weeks or months. They don't really tend to last for years. But there's a fair amount of unpredictability that's going to kind of underlie the markets for quite some time. Of course, as a Friday morning here at around 10:15 a.m., we should probably timestamp that to note that there does seem to be a bit of pause in the sense that the president was out just the other day that talked about maybe just holding fire for the next two weeks or so, reassessing his options, letting diplomacy kind of take the center stage. And the markets are certainly kind of cheering that, if you will, in response to the latest news. I think markets can be a little too complacent though, in the sense that there is still, I think, some risk. Of escalation that can't be ignored. There are some, were some tales that we have to think about, but I think at the margin overall, I think the markets are probably correct to think that hopefully level heads will prevail.
We think it's important if nothing else to really be diversified in this environment. I think history has shown that irrespective of the actual cause for policy shocks like this, or maybe some third party disruption, or maybe some exotic event, typically being diversified is really your best outcome. And we've seen that kind of take place this year with respect to international markets, actually outperforming domestic markets. We still think that probably that trade still has some legs. We think it's really important to be up in quality with respect our portfolios. And we think that also has some traction in the second half of this year. And I think also for those clients that are looking for perhaps more diversification and can accommodate this in their portfolios, we think actually some real asset exposure has some real benefits. And we've talked a lot about those in certain conversations as well, but things typically like gold and infrastructure, even to some things like TIFFS inside a Treasury portfolio have provided some honest protection in this environment. And I think that's going to be important as we're going forward. So again, we can't really predict what's going happen, but we can prepare and we can be prepared to be diversified for a wide range of outcomes that might ensue over the next few months and weeks ahead.

Brian Pietrangelo [00:15:14] Well, we've got a real special guest with us today on the podcast. Joe Velkos, our national tax director for Key Wealth, is here to give us an update on the One Big Beautiful Bill and the things that we believe our audience members should know and investors should know about the bill. So we're going to walk through a dialog with Joe. Joe, welcome. In addition, I want to thank you, Joe. I know there's a Key Questions article that you also wrote that covers a lot of the same things we're gonna talk about on the podcast, but in much more detail and in writing. And you can also always find our key question article available on key.com. So welcome, Joe, and I'll get ready to ask you a few questions.
Joe Velkos [00:15:53] Morning, Brian. Thank you for having me today. Looking forward to the discussion.
Brian Pietrangelo [00:15:57] So first, I think is the best way to do this is let's talk about One Big Beautiful Bill at a very high level. Can you share with us what it is, what it intends to accomplish, and where it stands on becoming law?

Joe Velkos [00:16:08] Yeah, that's a good place to get started, Brian. Again, good morning, everyone. On May 22nd, the US House of Representatives passed the sweeping tax and spending bill dubbed by the president the One Big Beautiful Bill Act. Again, this bill is a broad tax proposal by House Republicans that's connected to President Trump's desire for continuing tax cuts. It is designed primarily as an update to Trump's 2017 Tax Cuts and Jobs Act that includes a lot of provisions for individuals, families, and business owners. It is important to note here many of the provisions that were part of the original 2017 Tax Act were business as well as individual provisions, Brian, but the business provisions or the corporate provisions were permanent, the individual provisions were more temporary. That's why the focus on this bill is on individual provisions. So some of the key provisions that were first introduced as part of the 2017 Tax Act that are getting included as part of this bill that should impact everyone.
First one is maintaining the lower individual tax rates. You know there's a cut in tax rates across the board. The one that's publicized the most is the highest tax rate at 37%. So this bill's proposal is to maintain this at 37% on an ongoing basis. Also, this bill's looking to make permanent the expanded standard deduction. For 2025, that's going to be $30,000 for joint filers. So this is, again, to be permanent going forward. But there's also a provision as part of this bill that it would increase it by $2,000 for tax years ‘25 through ‘28. And that's an important thing to know here, Brian, as well, because there are some add-ons here that will be good through President Trump's second term. Also another provision that's going to impact most of the taxpayers is expanding the child tax credit to $2,500 and making that permanent going forward as well.
I will also mention on the business front again many of our clients own businesses that are passed through entities, S corporations, LLCs so this impacts many of or client base. Is the bill is looking to make permanent to qualified business income deduction. Currently it's at 20%. The bill is not only looking to making it permanent, but also to expand it to 23%. You know, the one thing that's really important to know here is there are many provisions throughout this and they have a varying, you know, when they become current or when they become, you know, when they come due. So most of them started in 2026, but there are some that will start in 2025.
You know, the one thing that's important to know here, Brian, as well, is this bill is currently just a proposal. This is the first step in the legislative process. The bill currently is now with the Senate, or in fact on Monday the Senate's finance committee released their version of the budget bill. Okay, again, that's just step number two. This bill has many detractors, including several Republican senators who have voiced opposition, particularly the cuts that are needed to pay for this bill, but also the increase to the debt that's expected to be as high as five trillion dollars. So the next steps here is once the Senate passes their proposal, then there's going to be a conference committee that will be needed to reconcile between the House's version and the Senate's version. So, Brian, needless to say, there's quite a bit of work still left to be done here. And then the president's goal of passing before the July 4th holiday appears ambitious at this point.

Brian Pietrangelo [00:20:11] Joe, was there anything new in the provisions or the proposals that you thought was of interest to our listeners?

Joe Velkos [00:20:18] Yeah, so as mentioned, there are many, many proposals, many provisions in there. I will, I will highlight kind of the three most relevant for our client base. The one that's getting the most publicity relates to what's known as a state local tax deduction cap or SALT cap. Currently, taxpayers can elect as itemized deductions on their individual tax returns a maximum of $10,000 of local taxes paid, real estate taxes as an example. This bill is proposing to increase that cap to $40,000, a sizable markup to where it currently is. Now keep in mind this is a lightning rod for many as this increase is significant, okay, and it's seen as more of a wealthy individual's deduction because they'll be able to benefit mostly from this. Um the other thing that is certainly significant is on the estate tax front. The 2017 tax act expanded the estate and gift lifetime exemption which currently is about 14 million dollars for 2025 this bill is looking to make this permanent at 15 million dollars going forward absent any sort of action in this bill that exemption amount goes down to five million dollars starting in 2026. And the one thing that I will add on the business front, Brian, again this impacts many of our clients because they are business owners, is the bonus depreciation. So this bill proposes to restore 100 percent bonus depreciation for property that's placed and service in 2025 through 2029. Now, as a reminder to folks, the bonus depreciation lets businesses immediately deduct the full cost of certain assets, like machinery and equipment, versus spreading the depreciation deduction over years. As you can imagine, this is a very business-friendly provision and economic-friendly provision, as it makes companies go out and purchase assets. Under current law, the bonus depreciation is limited to 40% in 2025 and it's actually scheduled to phase down to 0% in 2027 without any further action. You know the one provision that I will throw out there Brian that's got a lot of publicity that's new that wasn't part of the 2017 Tax Cuts Act is the elimination of tax on tip income as well as overtime income, and as you can imagine there's a lot of limitations and restraints on this. So Brian, taxpayers can't all of a sudden want to reclassify their wages as overtime or as tip to try to claim the non-taxation of that income.

Brian Pietrangelo [00:23:14] Great summary, Joe. I really appreciate it. Last but not least, how should investors begin thinking about these new provisions and what should they do?

Joe Velkos [00:23:21] You know, Brian, we've been talking about this for a couple of years, right? In our planning, our advice has been very consistent to our clients is, you know, work with your advisors, you, know, game plan different scenarios, right, because we're still uncertain what's going to pass. And then by planning for these uncertainties or these different scenarios. Once it becomes law, clients will be able to act accordingly. And it won't be a scramble to try and get the right planning out there.

Brian Pietrangelo [00:23:49] Well, thanks for the conversation today, George, Cindy, and Joe. We appreciate your insights. And thanks to our listeners for joining us today. Be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results, and we know your financial situation is personal to you. So reach out to your relationship manager, portfolio strategist, or financial advisor for more information, and we’ll catch up with you next week to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

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