Vital Statistics:
Stocks are flattish this morning on no real news. Bonds and MBS are down small.
The week ahead will be dominated by the consumer price index on Wednesday and the producer price index on Thursday. We are in the quiet period ahead of next week’s FOMC meeting so there won’t be any Fed speakers.
The Street is looking for the CPI to increase 0.2% MOM and 2.3% YOY on the headline number and 0.3% / 2.9% on the core rate. This is an expected increase from the April numbers.
Despite the stronger-than-expected jobs report, Donald Trump urged Jerome Powell to cut interest rates by a percentage point. “Go for a full point, Rocket Fuel!” Trump wrote in a Truth Social post. This post coincided with the European Central Bank’s decision to cut rates.
As I talked about on Friday, the internals of the jobs report were really not that great. We saw a pretty big decline in the number of people actually collecting paychecks, and the labor force participation rate fell. Fed policy is still tight by about 100 basis points.
Philly Fed President Patrick Harker said on Friday that “moderately tight” policy is correct. “Taking a pre-emptive action on hypotheticals, rather than what the hard data is telling us, is a mistake,” he said referring to the fact that inflation is still above the Fed’s 2% target.
If inflation continues to fall, and the tariff effect doesn’t cause higher inflation cutting rates may be appropriate later in the year. Of course the risk is that the Fed overshoots and causes a recession.
Trade talks between China and the US begin this week and run through Friday. The US wants to see an end to export controls for rare earth elements while China wants access to jet engines and technology.
