We missed last week for Memorial Day, but the surprise downgrade of U.S. debt by Moody’s rating agency ended with a muted reaction from markets. Moody’s was the last of the three major rating agencies to remove the U.S.’ top tier credit rating. S&P did it in 2011 and Fitch in 2023. Moody’s outlook on the U.S. remains stable. Their report noted the economic and fiscal strengths of America no longer fully counterbalance the decline in fiscal metrics. The downgrade initially sent the 30-year Treasury over 5% for the first time since November 2023 and the 10-year note over 4.50%. Since then, rates have receded. 

President Trump’s Big Beautiful Bill passed the House last week and is currently being reviewed by the Senate for amendments and passage. Hopes are for the bill to be on Trump’s desk for a signature by the end of July when Congress begins their summer recess. The current form is over 1,000 pages and includes roughly $3.8 trillion in tax cuts. It includes an extension of the 2017 tax cuts set to expire at the end of the year. The bill also includes provisions such as eliminating taxes on overtime and cash tips from 2026 to 2028, maintaining the current $2,500 child tax credit through 2028, adding work requirements for Medicaid, increasing state contributions to SNAP benefits, boosting funding for border security, introducing new immigration fees and overhauling student loan repayments. It also lifts the debt ceiling by $4 trillion to prevent a potential default when Treasury funding runs out in July or August, as projected. The bill faces issues in the Senate, including funding for the bill, as well as issues an increase in SALT deductions.

The FOMC released the minutes from their May 6-7 meeting this week and elevated uncertainty remains the theme. The notes added, “Participants agreed that with economic growth and the labor market still solid and current monetary policy moderately restrictive, the Committee was well positioned to wait for more clarity on the outlooks for inflation and economic activity.” That means more wait-and-see for now, with interest rate futures currently pricing in the first cut for October’s meeting. 

KEY INDICATORS THIS WEEK

Inflation - CORE PCE, the FOMC’s preferred inflation measure, was reported in line with market expectations but remains elevated at 2.5% year-over-year. 

Consumer Sentiment - After a bleak consumer confidence survey in April with a downwardly revised 85.7, the rating jumped to 98 for May, the largest monthly jump in four years. Add it to the pile of transient data the FOMC will fail to heed in the coming months. 

Next Week – Jobs!