Flatlining on an echocardiogram is usually a bad thing. For an economy in waiting mode, this week’s flat inflation and unemployment data showed there’s more waiting to come. After dropping 0.1% in March, CPI rose just 0.2% month over month — back to the same level, excluding food and energy. Year over year CPI rose 2.3% and 2.8%, excluding food and energy. PPI posted a series of month over month drops but rose 2.4% year over year. Excluding food and energy, it was a 3.1% year over year increase. Employment held steady at 229,000 initial applications, keeping the four-week moving average at 230,000. Despite what some markets may think, this data does not support any increase in the probability of sooner or bigger rate cuts. 

In FedSpeak this week, Chair Jerome Powell commented, “We may be entering a period of more frequent, and potentially more persistent, supply shocks — a difficult challenge for the economy and for central banks.” The comment came as the FOMC is considering updating their decision-making framework for the first time since 2020. Atlanta Fed President Raphael Bostic also mentioned that he expects the U.S. economy to slow this year but not fall into recession. Bostic added that he expects just one FOMC rate cut this year because, “...I think the uncertainty is unlikely to resolve itself quickly.” As of this writing, interest rate futures are pricing in the first full 25 basis point rate cut for the October 29 FOMC meeting. 

This morning’s University of Michigan survey data showed consumer sentiment fell to the second-lowest level on record as inflation expectations rose to a multi-decade high of 7.3% over the next year. The report also showed costs rising at an annualized rate of 4.6% over the next five to ten years. Consumers’ views of their current personal finances fell to the lowest level since 2009 as well.

KEY INDICATORS THIS WEEK

Retail Sales – Rose by just 0.1% for April after jumping 1.4% in March. Most believe this reflects the front-loading of purchases ahead of Liberation Day and the drop this month represents more of a regression to the mean. Seven of 13 categories posted drops, while spending at restaurants and bars rose for the second month.

Next Week – Jobless claims, S&P PPI, homes sales and building permits. There will be no BTN next week in observance of Memorial Day.