Stocks are rebounding after Friday’s bloodbath in tech. Bonds and MBS are down.
Israel and Iran exchanged fire over the weekend. Trump told both sides to knock it off and now Iran is saying it has ended its waves of strikes. This has to be the most hostile cease fire I have ever seen.
The week ahead will be dominated by inflation data, with the consumer price index on Wednesday and the Producer Price Index on Thursday. Aside from the inflation data we will get existing home sales and consumer sentiment. Treasury will do a 10 year auction on Wednesday.
We are also in the quiet period ahead of the June FOMC meeting so we won’t have any Fed speakers. Lennar will announce earnings on Thursday.
The jobs report on Friday prompted the Fed Funds futures to re-calibrate the chances for rate hikes this year. The June futures still overwhelmingly see no change, but the December futures see an over 70% chance of a rate hike this year.
The June meeting will give us a fresh set of economic projections and a new dot plot
Cleveland Fed President Beth Hammack had this to say on Friday after the jobs report:
The Federal Reserve’s inflation objective is 2 percent.
That number isn’t just theoretical; price stability is a foundation for businesses, consumers, and investors to make sound economic decisions. It’s key to economic growth and maximum employment in the longer run.
While I never make too much of any one data point, today’s jobs report reaffirms that the labor market appears to be roughly in balance. The unemployment rate remaining stable at 4.3 percent is right around my definition of full employment.
By contrast, inflation is telling a different story. It’s high, moving higher, and I believe persistently high inflation is the bigger concern.
When I’m out in the District, I’m starting to hear from people that they don’t think things are going to get better any time soon. It would be a bad development if consumers, businesses, and financial markets begin to expect higher inflation in the future. Such a shift in expectations would warrant decisive action.
For today, it’s reasonable to keep rates steady given the uncertainties around the economic outlook. But if recent trends continue, it may soon be appropriate to act.
