Weekly economic and financial commentary

Summary

United States: Prices Push Higher in May, Signaling Little Immediate Relief for Consumers

• Consumer price inflation continued to push higher in May, with the consumer price index rising more than expected and lifting the annual rate of inflation to a fresh 40-year high. Consumers continue to feel the pinch of higher prices, evident in the persistent deterioration in consumer sentiment. To date, households have demonstrated uncanny staying power in the face of inflation, but with little signs of immediate relief from prices, this will only become more challenging.
• Next week: Retail Sales (Tue), FOMC Rate Decision (Tue), Housing Starts (Wed)

International: European Central Bank Readies Rate Hike as Reserve Bank of Australia Delivers

• The European Central Bank (ECB) took another step this week on its path of policy normalization at its latest monetary policy announcement. The ECB said it intends to raise rates by 25 bps in July, perhaps by an even larger amount in September, and deliver a steady series of rate hikes over time. The Reserve Bank of Australia surprised markets with a larger-than-expected 50 bps rate increase, which we expect it will follow up with another 50 bps hike at its July announcement.
• Next week: U.K. GDP (Mon), China Retail & Industrial Activity (Wed), Australia Employment (Thu)

Interest Rate Watch: SNB and BoE Hold Policy Meetings Next Week

• We expect the Swiss National Bank to remain on hold next week, but we look for it to commence a tightening cycle later this year. We expect the Bank of England to hike rates by 25 bps on Thursday.

Credit Market Insights: Consumer Credit Is Up, Household Net Worth Is Down

• Consumer credit had yet another strong month in April rising $38.1 billion, a near-record increase bested only by the prior month's unprecedented surge. Meanwhile, household balance sheets slipped in the first quarter as household net worth declined for the first time since Q1-2020, when COVID initially struck.

Topic of the Week: Budget Deficit Shrinks...For Now

• Fiscal year 2022 is now nearly three-quarters complete, and the federal budget deficit has narrowed significantly. Our current forecast is for the federal government to incur a budget deficit of $900 billion in FY 2022. If realized, this would be a smaller deficit than the one that prevailed before the pandemic.

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