United States: The long and winding road to easing

Summary

United States: The long and winding road to easing

• The case for rate cuts this summer continued to weaken as this week’s economic data painted a scene of stubborn inflation against the backdrop of defiant consumer demand. We got our first look at Q1 GDP, which downshifted to a 1.6% annualized pace and was accompanied by a hot core PCE deflator reading. Consumers remain unfazed by high rates and inflation as Q1 personal consumption expenditures and March personal spending both came in strong.

• Next week: ISM Manufacturing (Wed.), FOMC Meeting (Wed.), Employment (Fri.)

International: Sentiment data suggest European economic growth could turn a new leaf

• This week's April PMI data for the Eurozone and United Kingdom reinforced the apparent divergences between sluggish manufacturing and robust service sector activity. However, the data remain generally encouraging and align with our view for modest growth recoveries for both economies this year. The Bank of Japan held monetary policy steady this week, and while a near-term move seems unlikely, some further policy normalization still looks possible by late this year.

• Next week: China PMIs (Tue.), Eurozone GDP & CPI (Tue.)

Interest rate watch: Treasury refunding preview: Taking a breather

• The U.S. Treasury has been ramping up its debt issuance over the past year, but we suspect the May 1 refunding announcement will signal the torrid pace is set for a breather. Treasury seems well-positioned to meet its financing need for at least the remainder of the year.

Topic of the week: Regional economic conditions waving the beige flag

• Last week, the Federal Reserve released the April edition of the Beige Book. The release highlights that, although economic activity and the labor market have been plodding along, price pressures remain persistent and the last mile on inflation is proving to be particularly challenging for the Fed.

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