Stocks are higher this morning as the US announces the blockade of Iranian ports is in full effect and that 20 ships transited the Strait of Hormuz yesterday. It looks like the sea lanes are opening and that should put some pressure on elevated commodity prices.
A second round of peace talks are potentially in the works for this week or next before the current cease-fire expires.
Inflation at the wholesale level came in lower than expected, albeit it was a sizeable jump. The producer price index rose 0.5% MOM, which was flat compared to February’s downward-revised number. Annually the headline number increased 4.0%, a big increase from February’s 3.4% increase. Most of that increase was due to energy prices driven by the Iranian situation.
The core rate that excludes food and energy rose 0.1% MOM and 3.8% YOY. This was a deceleration from February. Inflation is still too high for the Fed’s liking and the Fed Funds futures are pricing in a miniscule chance for a rate hike at this month’s FOMC meeting. The December futures still see about a 1/3 chance for one 25 basis point cut this year.
Chicago Fed President Austan Goolsbee said that rate cuts might have to wait until next year: “I thought there could be even multiple rate cuts in 2026; the longer this goes where we never got to see the decrease in inflation (and) if the inflation stays up, realistically, I think that starts pushing it out of ’26,” Goolsbee told AP at the Semafor World Economy conference. “It’s our job to get inflation back to 2%”
Treasury Secretary Scott Bessent said that he supports rate cuts now but understand if the Fed has to put them on hold: “I am highly confident that the core inflation … which is quite under control and actually dropping in many categories, will continue to go down,” he told reporters at the Semafor World Economy Conference in Washington, D.C. “I believe rates should be cut,” he added, “but that if they want to wait for some clarity, I understand that.”
Mortgage applications increased 2% last week as purchases were unchanged and refis rose 5%.
Higher energy prices are increasing construction costs, according to the NAHB. Yesterday’s PPI showed energy prices rising at the fastest pace in six years, while building materials prices also increased. That said, construction inflation is more or less at pre-pandemic levels:
