Recent Data Reaffirms Pause
- The European Central Bank has sent a clear signal that it will cut interest rates from their historic highs next week, as its chief economist brushed off fears that doing so before the US Federal Reserve could backfire. Philip Lane told the Financial Times in an interview ahead of the bank’s landmark June 6 meeting: “Barring major surprises, at this point in time there is enough in what we see to remove the top level of restriction.” – FT
- The PCE price index rose 2.7% from a year earlier in April, in line with economists’ expectations and unchanged from the prior month. The core PCE price index that strips out food and energy, which the Fed favors, was up 2.8%, a tad more than expected. More noteworthy were the figures for personal income and consumption. Incomes rose 0.3% from the preceding month, in line with expectations and down from 0.5% growth in March. Personal spending rose just 0.2%, below expectations and slowing from 0.7% in March. In real, inflation-adjusted terms consumption and disposable incomes both fell 0.1%. It seems that the cumulative impact of years of inflation is finally catching up with consumers and eroding their savings cushion—something that companies selling discretionary goods from Starbucks to Kohl’s are saying in their public reports.– WSJ
- Many of the trades that worked in 2023 continue to work: large cap quality U.S. stocks have led the way, and excitement over artificial intelligence technology has driven outsized returns in select names. The flip side is that inflation has remained sticky, calling into question when the Federal Reserve will be able to start easing interest rates. – BlackRock
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