Powell Reaffirms Wait-and-See Posture on Rate Cuts Congressional hearings follow an emerging rift within the Fed on rate cuts and sharp criticism from Trump
Federal Reserve Chair Jerome Powell told lawmakers on Tuesday that recent economic data would have likely justified continuing to lower interest rates if not for concerns that higher tariffs might derail the central bank’s yearslong fight to defeat inflation.
Powell said little to tee up a rate cut next month without explicitly ruling one out. But his answers to lawmaker queries suggested it was more likely officials would wait until at least their September meeting to see if tariff-driven price increases are milder than expected before resuming rate cuts.
“If it turns out that inflation pressures do remain contained, we will get to a place where we cut rates sooner rather than later, but I wouldn’t want to point to a particular meeting,” Powell said at a House Financial Services Committee hearing.
Officials broadly expect tariffs to lead price growth to pick up this summer, interrupting an uneven but broad-based inflation slowdown over the past two years. “We do expect [inflation] to move [up] in the summer and if we see it not happening, we will learn from that,” Powell said. (…)
“If we were to see the labor market meaningfully weaken in a way that was concerning, that would matter for that decision,” he said. “I don’t think we need to be in any rush because the economy is still strong, the labor market is strong.” (…)
“We’re going to be learning. We will get an inflation number for June. We’ll learn something. Then we’ll get it for July,” Powell said. “We’re perfectly open to the idea that the pass through” of tariffs into retail prices “will be less than we think. And if so, that’ll matter for our policy.”
When the Federal Reserve Bank of Dallas asked firms in May what actions they were taking in response to higher tariffs, the top response is that they are passing cost increases through to consumers.
Here’s the consensus forecast: GDP down, inflation up:
Apollo’s Tortsen Slok shows how loan demand has slowed since March…
… and M&A activity has stalled amid the uncertainty
Goods inflation is clearly up at the manufacturing level but there were periods (my red circles) when overall PCE inflation did not follow, mainly because services inflation remained subdued thanks to slow growth in wages and/or oil prices.
Monday’s flash PMI revealed that
Price pressures rose sharply across both manufacturing and service sectors during June, the former reporting an especially steep increase, and again commonly linked to tariffs.
Manufacturers’ input prices and selling prices both rose at rates not seen since July 2022, as higher costs were passed on to customers. Close to two-thirds of all manufacturers reporting higher input costs attributed these to tariffs, whilst just over half of respondents linked increased selling prices to tariffs.
However, prices also rose sharply in the service sector, likewise often attributed to tariffs but also reflecting higher financing, wage and fuel costs. Service sector input costs and selling prices nonetheless rose at slower rates than in May, in part reflecting more intense competition.
While the slower rates of service sector price inflation helped offset some of the increase in manufacturing prices to bring rates of inflation down from May’s recent peaks, the overall rise in costs was still the second largest since the start of 2023. The rise in prices charged for goods and services was the second highest since September 2022.
Tomorrow we get personal expenditures and PCE inflation data for May. Most economists expect price pressures to become more visible in June.
The big unknown is demand given these recent trends (Charts from Apollo)
- Goodbye Fancy Bar, Hello At-Home Pizza Party: Young Americans Cut Back A combination of economic challenges are driving a decline in spending among Gen Z.
In-store and online purchases for 18- to 24-year-olds fell 13% year-over-year between January and April, according to market research firm Circana. Spending by older groups is still on the rise but has slowed.
A combination of economic challenges is driving the decline. Young grads are having a much tougher time finding jobs. Student-loan payments are restarting for millions of borrowers. Over roughly the past year, credit-card delinquency rates have risen to their highest points since before the pandemic, and are highest for those 18 to 29, according to the New York Federal Reserve.
“This group is struggling more than older cohorts,” said Wells Fargo economist Shannon Grein. Categories where young people’s spending has fallen the most include apparel (-11%), accessories (-18%), technology (-14%) and small appliances (-18%). (…)
Online sales for Thread Wallets, an accessories brand that sells primarily to 18- to 29-year-olds, fell 29% over the first three weeks of June compared with the same days in May.
“Instead of buying the $30 wallet, they’re buying the $16 wallet,” said Ryan King, chief financial officer for the brand. The company, he added, is trying to balance tariff-induced price increases on some of their supplies with promotions that could draw in cash-strapped customers. (…)
Fedex results yesterday:
“The global demand environment remains volatile,” said CEO Raj Subramaniam during an earnings webcast, as the company failed to provide full-year earnings and revenue forecasts, pointing to uncertainties surrounding U.S. trade policies. (…)
“FedEx is like the economy’s Fitbit. Express shows business demand, Ground tracks e-commerce, and Freight reflects industrial strength. Right now, all three are looking sluggish,” said Michael Ashley Schulman, partner at Running Point Capital Advisors.
Canada Inflation Steady at 1.7% in May May’s inflation hinted at possible signs that higher tariffs are working their way into higher prices for some items
Inflation in Canada steadied in May as drivers paid less at the pump and hefty rent increases continued to cool, though the central bank may still lack a clear enough signal to cut interest rates again.
The consumer-price index rose a slightly hotter-than-anticipated 0.6% for the month to leave annual inflation unchanged at an as-expected 1.7%, a second straight month below the Bank of Canada’s 2% target, thanks in large part to the scrapping of a carbon tax in April, Statistics Canada data released Tuesday showed.
The Bank of Canada’s preferred measures of core inflation cooled slightly but remain firm and continue to outpace the headline gauge of inflation. That may offer modest comfort for central bank policymakers concerned that firmer inflation might be stronger than initially expected and may persist. (…)
The central bankers next decide on rates July 30, when they will have another inflation report on hand as well as updates on industry-level economic growth, jobs and a better view of just how hard hit trade-exposed factories have been to higher U.S. tariffs. Statistics Canada’s advance estimate for manufacturing trade, also released Tuesday, showed a further monthly contraction of 1.3% that builds on April’s 2.8% drop in sales to the lowest level since the start of 2022.
May’s inflation hinted at possible signs that higher tariffs are working their way into higher prices for some items. Prices for passenger vehicles, which have been targeted by tariffs, were higher for the month even as grocery and sporting equipment inflation faded slightly but remained well above headline inflation. (…)
China’s premier vows to ‘open its doors wider’ to trade and tech industry ‘Globalisation will not be reversed,’ Li Qiang tells annual World Economic Forum event
Li, Beijing’s second-highest ranking official, said China would make its technological advances available to other countries as he outlined a transition from a manufacturing power to a “mega-consumer market”.
“Economic globalisation will not be reversed; it will only carve out a new path,” Li told the World Economic Forum’s annual summer event in the northern Chinese city of Tianjin on Wednesday.
“We will further integrate and connect with the global market.” “We will not and shall not return to closed off and isolated islands,” he added. (…)
The world’s “economic and trade system is becoming more diverse”, he added on Wednesday. The “global south is rapidly gaining strength”.
Li also said that “China’s innovation is open and open source”. The country’s top artificial intelligence groups DeepSeek and Alibaba have made their large language models available to developers around the world. “We are willing to share indigenous technologies,” Li added. (…)
“The global economy is deeply integrated; no country can sustain its prosperity in isolation from the world,” he said.
Alberta Premier Smith says plan for new West Coast oil pipeline ‘pretty close’
Ms. Smith said Tuesday that it is important to get a new plan on the table as soon as possible to send a positive signal to Alberta’s oil and gas sector, and to test the new two-year approval process Prime Minister Mark Carney has put forward for large infrastructure projects.
“We’re pretty close to having either one or a consortium come forward, and so I would hope that that would happen very soon,” the Premier said at a press conference in Calgary. (…)
Oil and gas pipelines have come into sharp focus because of U.S. President Donald Trump’s trade war, as Canada’s fossil-fuel sector searches for more opportunities to diversify from the United States, its largest customer.
Mr. Carney has pledged to make Canada an energy superpower, but for Ms. Smith, meeting that goal will require new pipelines that can transport Alberta oil and gas to a Canadian coast – west, north or east – to access overseas markets. (…)
Ms. Smith and her Saskatchewan counterpart, Premier Scott Moe, are also pushing for a port-to-port trade corridor proposal project in Canada’s North, which would help the country’s goods reach Asian markets from British Columbia’s Port of Prince Rupert. (…)
The project would include the development of the economic corridor between the Prince Rupert port and Hudson Bay, connecting in Churchill, Man., and ultimately tying into the proposed Grays Bay Road and Port project in Nunavut, which would connect rich mineral resources to international shipping routes. (…)
Going east-west rather than mainly north-south.