Stocks are lower this morning on no real news. Bonds and MBS are up small. Korean stocks sold off 9% overnight.
First quarter GDP rose 2.1% in the third revision, an increase of from the 1.6% second estimate. Imports were revised downward, while investment was increased. Consumer spending was revised downward as well. IT and federal government spending (Iran) were the biggest positive contributors to GDP.
In other economic news, durable goods orders fell 4.5%, while capital goods orders rose 1.6%. The Chicago Fed National Activity Index declined and initial jobless claims fell to 215k.
After the inflation print yesterday, the Fed funds futures became slightly more dovish. The most likely outcome for the year is that the Fed funds rate will be 25 basis points higher. The second most likely outcome is 50 basis points, and the third is no change.
Austan Goolsbee said that inflation is “going the wrong way” while John Williams sees it trending lower and is happy with the current level of interest rates.
Austan Goolsbee said: “You have seen now little bit of improvement on this services inflation, and I’ve been identifying that as something that we would want to see,” Goolsbee said from the trading floor of the Cboe. “But right now, as between the two sides of the Fed’s mandate, the inflation side and the job market side, clearly the problem’s on the inflation side.”
John Williams said: “Given the elevated level of inflation, it is imperative that we restore it to our 2 percent longer-run goal on a sustained basis,” Williams said in remarks at the Crane Money Fund Symposium in Jersey City, New Jersey. “The current stance of monetary policy is well positioned to do that.”
Williams thinks that the effect of tariffs is waning, and if we end up with some sort of durable solution in Iran energy prices will decline. Finally rental inflation seems to be slowing which is positive for lower shelter inflation.
Speaking of shelter inflation, single family rent growth is decelerating according to Cotality. Single family rents increased 1.4% YOY in April, compared to an increase of 2.8% in April of 2025. The hip-to-be-square trade continues, with Chicago seeing 5.5% growth while the Sunbelt is seeing YOY declines.
“Single-family rent growth has shifted into a slower gear, with annual gains continuing to ease even as monthly increases remain in line with typical seasonal patterns. Since Fall 2025, annual rent growth has held within a narrow range of about 1% to 1.5%, signaling that the market has settled into a more stable phase after the sharper deceleration seen earlier,” said Molly Boesel, senior principal economist at Cotality. “Growth continues to diverge by segment and region, with higher-priced rentals still outperforming lower-priced homes. Regionally, Midwestern and Northeastern markets such as Chicago, Philadelphia, and New York are driving stronger gains, with Chicago up 5.5% year over year, while some Sun Belt markets, including Miami and Los Angeles, are flat or declining. With annual gains remaining subdued and fewer markets posting declines, rent growth appears to be holding steady at a low level rather than building momentum going forward.”
