Weekly economic and financial commentary

Summary

United States: Sticky Inflation, Sticky Wicket for the Fed

• Price data this week showed that inflation remains stubbornly above the FOMC's target. Overall inflation has trended sideways in recent months, and while we do not expect this week's data to prevent the Fed from cutting another 25 bps next week, it will likely contribute to the Committee dialing back its guidance for additional easing ahead.

• Next week: Retail Sales (Tue.), Industrial Production (Tue.), Personal Income and Spending (Fri.)

International: Center Stage for Foreign Central Banks This Week

• It was a very active week for foreign central banks. The European Central Bank cut rates 25 bps, and we view the dovish accompanying statement as consistent with steady easing at every meeting through next June. Meanwhile, the Swiss National Bank and Bank of Canada opted for more aggressive easing, with both delivering 50 bps rate cuts. On the flip side, Brazil's central bank announcement was very hawkish, as officials increased the Selic rate 100 bps and explicitly signaled same-sized increases at the next two policy meetings.

• Next week: Eurozone PMIs (Mon.), Bank of Japan Policy Rate (Thu.), Bank of England Policy Rate (Thu.)

Interest Rate Watch: A Year in Review for Rates: Exiting Inversion

• Coming into 2024, there was significant uncertainty about the path ahead for U.S. interest rates. Rate cuts from the FOMC have yielded lower short-term interest rates, but longer-term yields have risen this year amid reduced odds of a "hard landing" and rising estimates for r-star.

Credit Market Insights: Diverging Paths for HELOCs and Credit Cards

• Consumer spending has driven record-high credit card balances, while HELOC usage has plateaued despite falling borrowing rates. These trends suggest that consumers are still relying significantly on credit cards to support their spending habits.

Topic of the Week: If History Is Any Guide

• The 1930 Smoot-Hawley and 2017-2019 trade wars have taught us that countries are unlikely to stand down in the face of U.S. tariff increases. Who buys U.S. exports, and what goods are at risk?

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