Steady Fed

As expected, the Fed made no change to the federal funds rate, and the meeting statement was similar to the prior one. Officials continued to emphasize the high level of uncertainty about the economic outlook due to changes in government policies. The statement also elaborated on the challenge facing the Fed, since higher tariffs could lead to increasing unemployment and higher inflation. If both outcomes take place, lower rates would be the proper course to boost the labor market, but higher rates would be called for to fight rising prices. As a result, officials intend to proceed slowly on monetary policy changes to allow ample time to evaluate evolving economic conditions. Most investors anticipate that the Fed will lower the federal funds rate at the July meeting.

The most significant economic report released this week came from the Institute of Supply Management and exceeded expectations. The ISM national services sector index rose to 51.6, above the consensus forecast and the highest level since February 2024. Readings above 50 indicate an expansion in the sector.

The U.S. trade deficit surged to a record high of over $140 billion in March, as companies and consumers rush to purchase goods ahead of potentially higher prices. Global tariffs are set to rise significantly on July 6, although many countries reportedly are working on trade deals and one was reached with the UK this week. Imports of consumer goods also hit a record in March with large increases seen in a wide range of categories including pharmaceuticals, apparel, furniture, and household appliances.

Week Ahead

Investors will continue to look for additional information about tariff policies. For economic reports, the main event will be CPI on Tuesday. The Consumer Price Index (CPI) is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services. Retail Sales will be released on Thursday. Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key measure of the health of the economy. Import Prices and Housing Starts will come out on Friday.

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

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.