Consumer Spending Jumps

With many consumers rushing to beat possible price hikes due to new tariffs, retail sales in March surged a giant 1.4% from February, close to expectations, and the largest monthly increase since January 2023. Motor vehicle and parts sales posted a massive gain of 5.3% in March. Significant strength was also seen in sporting goods/hobbies and building materials.

In the past, a monthly report on import prices from the Bureau of Labor Statistics has generally not received much attention, but investors are keeping a closer eye on it now due to the new tariff policies. Import Prices in March were roughly flat from February, as expected. This is important because import prices are measured before any tariffs are imposed. Investors are trying to determine whether exporters in other countries will lower their prices to at least partially offset higher tariffs or whether U.S. households and businesses will absorb the costs.

In a speech on Wednesday, Chair Powell again suggested that the Fed may face a "challenging scenario" due to the new tariff policies, which are expected to raise inflation and lower economic growth, putting the goals of its dual mandate in conflict. As a result, Powell concluded that officials need to wait and see the effects of the tariff policies to decide the appropriate path for future monetary policy. Investors currently anticipate that the Fed will reduce the federal funds rate in June.

On Thursday, the European Central Bank (ECB) reduced benchmark interest rates by 25 basis points. This move was widely anticipated, and the reaction was relatively minor. In its policy statement, the ECB said that the outlook for growth "has deteriorated" due to rising trade issues, and the volatile market response is likely to have a "tightening impact" on financial conditions.

Week Ahead

Investors will continue to look for additional information about tariff policies. It will be a very light week for economic reports, highlighted by the housing sector data. New Home Sales will be released on Wednesday and Existing Home Sales on Thursday.

We would like to thank Peter Costakos and his partner, MBSQuoteline for their insightful information.

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