The timeline for trade deals, a federal tax and spending bill, and US rate cuts remained in focus this week, as investors hunt for clues that might shed light on a murky outlook. Lawmakers on Capitol Hill are racing to meet a self-imposed July 4 deadline to wrap up legislation that is expected to extend tax cuts for individuals and trim government spending. As the US continues discussions with key trade partners, there is a sense of optimism in global markets regarding the potential for less severe tariffs. The Trump administration’s pause on its tariff plan is set to expire on July 9, although an extension is possible. Meanwhile, despite US strikes on Iran over the weekend, NYMEX West Texas Intermediate oil futures retreated on Monday amid waning fears that the conflict will threaten energy infrastructure or shipping lanes in the Middle East.

With decisions on tariffs and taxes still to come, the Federal Reserve is debating the impact of these policies on inflation before electing to ease borrowing costs. In a congressional hearing on Tuesday, Fed Chair Jay Powell said officials will likely monitor how tariffs affect prices at least through the summer, which could put a rate cut on hold until at least September. This contrasts with recent comments from Fed Governors Christopher Waller and Michelle Bowman, who said the central bank could cut rates sooner, perhaps as early as July. The US economy contracted by 0.5% on an annualized basis in the first quarter, down from a previous estimate of 0.2%, the Commerce Department said on Thursday. The agency will release May’s personal consumption expenditures (PCE) data on Friday, providing a fresh look at spending and prices. In an update to our Capital Market Assumptions, PGIM evaluates how trade policy, tariffs, and other factors impact the long-term outlook across asset classes.