Stocks are lower this morning after the inflation numbers came in as expected. Bonds and MBS are down.
First of all, apologies for no Morning Report on Friday and Monday. I was on the road and my laptop was having issues.
The week ahead will be dominated by inflation data, with the consumer price index today and the producer price index tomorrow. We will also hear from Neel Kashkari, Austan Goolsbee and Beth Hammack amongst others. Hammack and Kashkari dissented at the April meeting over the easing bias and it will be interesting to hear more about it.
Consumer inflation rose 0.6% MOM and 3.8% YOY, while the core rate rose 0.4% MOM and 2.8% YOY. The headline number moderated from March’s 0.9% increase. Higher energy prices drove the jump. Interestingly, the index for shelter jumped from 0.3% to 0.6%. We saw home price inflation rebound in the Clear Capital Home Data Index in the same month, so perhaps home prices are rebounding. This will be something to watch. Used car prices fell.
The headline number was in line with expectations, while the core rate came in slightly hot.
Existing home sales rose 0.2% MOM in April, according to the NAR. “Despite mixed macroeconomic signals—including a record-high stock market and historically low consumer confidence—home sales were modestly boosted by the continued improvement in housing affordability,” said NAR Chief Economist Dr. Lawrence Yun. “Mortgage rates are lower from a year ago, and average income growth is outpacing home price gains.”
“Inventory still remains tight,” Yun added. “Multiple offers, though not as intense as a few years ago, are still occurring. At the same time, days on market are lengthening on average, implying that consumers are taking their time before making decisions.”
“The increase in second-home purchases reflects stronger finances among higher-income households, as well as the post-COVID rise in remote work and hybrid job schedules.”
There were 1.47 million units for sale at the end of the month, which represents a 4.4 month supply. The median home price rose 0.9% YOY to $417,700.
Problems continue in the private credit space. FS KKR Capital, a KKR-sponsored private credit fund reported a big drop in NAV, and KKR is injecting $300 million into the fund to stem losses.
Small Business Optimism barely budged in April, according to the NFIB. The uncertainty index declined, although it did it the wrong way – by businesses determining it is not a good time to expand. The employment index fell, as did capital expenditures. Inflation rose.
Economic growth picked up in the first quarter, posting 2% growth
after less than 1% in the fourth quarter of 2025. The driver was capital spending, as AI investments surged. Government spending added a little oomph; consumers stayed in the weeds. Job creation was a bit better, but the unemployment rate stayed the same. Powell conducted his last meeting as Fed chair. President Trump wants the new chair to cut interest rates, but the rest of the Federal Open Market Committee is unlikely to comply. Indeed, some on the Fed Board favor a rate increase to prevent the AI spending and higher energy prices from pushing inflation higher. This is a tough balancing act.
In April, when more small business owners reported paying higher interest rates on their loans, the market raised those rates, not the Fed. The frequency of price increases for goods and services also rose, adding more to inflationary pressures. The percent making capital outlays is down nine percentage points so far this year; there doesn’t appear to be an AI investment surge on Main Street. With the April 15 Tax Day behind us, the benefits of the OBBB should start to feed into the private sector, and perhaps capital spending will respond later in the year as owners sort out the actual changes in the bill. Corporate profits are booming and the stock markets are hitting records, so hopefully Main Street will follow. But consumers have been “quiet”; sales are lagging, and hiring is weak. Consumer and Small Business Optimism are weak. Many uncertainties remain unresolved, but this process will likely get underway over the next few months.
