Weekly economic commentary: FOMC's holding pattern continues

Summary

United States: Risks have risen (but haven't materialized yet)

• The trade deficit blew a hole in Q1 productivity growth, and tariffs are anecdotally increasing price pressures in the services sector. But beyond temporary trade-related distortions, tariffs have yet to meaningfully impact the economic data. We anticipate that tariffs will be negotiated down from current levels but still create a stagflationary environment by year-end.

• Next week: Federal Budget Balance (Mon.), CPI (Tue.), Retail Sales (Thu.)

International: Foreign central banks in focus

• It was a busy week for foreign central bank announcements. The People’s Bank of China, Central Bank of Poland, Czech National Bank and the Bank of England all lowered their central bank policy rates. Sweden's and Norway's central banks held rates steady and kept the door open for more cuts later in the year, while Brazil's central bank raised its Selic rate by 50 bps and signaled the possibility of more tightening going forward.

• Next week: India CPI (Tue.), Australia Employment (Wed.), Japan GDP (Thu.)

Interest Rate Watch: FOMC's holding pattern continues

• As universally expected, the Federal Open Market Committee decided to keep the target range for the federal funds rate unchanged at 4.25%-4.50% this week. After cutting rates by 100 bps last year, the Committee has now been on hold for three consecutive meetings.

Topic of the Week: What's the deal?

• President Trump and U.K. Prime Minister Keir Starmer announced a U.S.-U.K. trade deal on Thursday. While this marks the first agreement since President Trump reignited the trade war earlier this year, the few details disclosed at this point don't necessarily set the precedent that other agreements will be quickly forthcoming or extensive in nature.

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