Vital Statistics:
Stocks are flattish after the US struck Iranian nuclear facilities over the weekend. Bonds and MBS are up.
The week ahead will have plenty of data to chew on, with existing home sales, new home sales, new home sales, and home prices. Jerome Powell heads to the Hill for his semiannual Humphrey-Hawkins testimony on Tuesday and Wednesday, and we have a slew of Fed speakers all week. Finally, we get personal incomes and outlays on Friday, which contain the PCE inflation numbers.
Fed Governor Chris Waller said on Friday that the Fed could start cutting rates as early as July. Breaking with the consensus of a lot of Fed watchers and policy makers, Waller said that he doesn’t expect tariffs to boost inflation significantly, so policy makers should start considering rate cuts.
“We’ve been on pause for six months, thinking that there was going to be a big tariff shock to inflation. We haven’t seen it. We follow the data,” Waller said. “I’ve been arguing since a year ago that central banks should be looking through this.”
“If you’re starting to worry about the downside risk [to the] labor market, move now, don’t wait,” he said. “Why do we want to wait until we actually see a crash before we start cutting rates? So I’m all in favor of saying maybe we should start thinking about cutting the policy rate at the next meeting, because we don’t want to wait till the job market tanks before we start cutting the policy rate.”
“I think we’re in the position that we could do this as early as July,” Waller said during a “Squawk Box” interview with CNBC’s Steve Liesman. “That would be my view, whether the committee would go along with it or not.”
Kudos to Waller for saying the Fed should focus on the actual data and not “what-ifs” when setting monetary policy. If the PCE print on Friday turns out to be benign, I suspect we will start to see more doves on the Fed speak out about cutting rates, although it will be interesting to see if there are any dissents in July when the Fed maintains rates at current levels.
The Fed’s Humphrey-Hawkins testimony will be interesting, since the Trump Administration is urging lower rates. Will liberal stalwarts like Elizabeth Warren and Bernie Sanders continue to advocate for lower rates or will they focus on something else, like banking regulation?
The Index of Leading Economic Indicators fell in May, according to the Conference Board. “The LEI for the US fell again in May, but only marginally,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “The recovery of stock prices after the April drop was the main positive contributor to the Index. However, consumers’ pessimism, persistently weak new orders in manufacturing, a second consecutive month of rising initial claims for unemployment insurance, and a decline in housing permits weighed on the Index, leading to May’s overall decline. With the substantial negatively revised drop in April and the further downtick in May, the six-month growth rate of the Index has become more negative, triggering the recession signal. The Conference Board does not anticipate recession, but we do expect a significant slowdown in economic growth in 2025 compared to 2024, with real GDP growing at 1.6% this year and persistent tariff effects potentially leading to further deceleration in 2026.”
So the main positive driver for the LEI was the rebound in the stock market, which isn’t really an economic indicator. The index would look worse if economic indicators were the only input.
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