Markets were left wanting after another lackluster FOMC meeting last week. Jerome Powell and company kept rates level for the fifth straight meeting. At the same time the European Central Bank and Canada cut their benchmark rates yet again. In his press conference, Powell stuck to the “hard data is strong” narrative, while acknowledging the recent flurry of poor soft data. The most telling part of the press conference may have been when Powell passively mentioned the FOMC was late when they cut rates 50 bps in September. The comment didn’t impact markets immediately, but the "hindsight is 20/20" attitude left markets confused right after the meeting. The committee is expected to release an updated dot plot and Summary of Expectations for their meeting, June 18. Currently, interest rate futures have pushed the next full 25-basis point rate cut back to September. 

The trade deficit was the story in economic reports last week. After a surge in imports caused a contraction in Q1 GDP, the trade deficit rose to a record $140.5 billion, a 14% increase from the prior month. Pharmaceutical preparations posted their largest inflow level ever, while imports of capital goods and motor vehicles increased as companies tried to secure shipments before Liberation Day on April 2.  The import surge is expected to normalize and not pose such an outsized effect on this quarter’s GDP figures. 

Trade deals abound this week after President Trump signed a bilateral agreement with the United Kingdom and worked with China to announce a de-escalation in the trade war by a 115-basis point reduction in each side’s respective tariff levels against the other. As of this morning, equity markets have erased all the losses suffered since Liberation Day

KEY INDICATORS THIS WEEK

Jobless Claims – The labor market continued to show its resilience with another strong showing in jobless claims at 228,000, tracking its four-week moving average of 227,000.

Inflation Expectations – The NY Fed released its survey of 1-year inflation expectations showing respondents expect inflation to be at 3.63% a year from now, up from 3.58% last month and reflecting a trend in growing inflation expectations since the beginning of the year.

This Week – We get CPI and PPI, wage data, retail sales, housing data and University of Michigan survey data to wrap up the week.