Weekly economic commentary: Moody's downgrade spotlights fiscal reality

Summary

United States: The old versus the new

• The challenges facing the housing market have yet to meaningfully abate. Our expectation for mortgage rates to soften slightly alongside Federal Reserve rate cuts could help improve affordability, but the prospects for such a move in the near term have dimmed.

• Next week: Durable Goods (Tue.), Consumer Confidence (Tue.), Personal Income and Spending (Fri.)

International: International data show mixed growth and lingering inflation

• This week brought a range of data and events from foreign economies. On the policy front, the Reserve Bank of Australia delivered a widely expected rate cut. Sentiment surveys from the Eurozone and the United Kingdom underwhelmed, providing further evidence of an uncertain outlook. On the price front, the U.K.'s and Japan’s overall inflation increased, while Canadian inflation eased on the back of the carbon tax removal. In China, industrial production and retail sales figures were mixed.

• Next week: Brazil GDP (Fri.), Canada GDP (Fri.), China PMIs (Sat.)

Interest rate watch: Moody's downgrade spotlights fiscal reality

• Late in the afternoon on Friday, May 16, Moody's downgraded the sovereign credit rating of the United States to AA+, one notch below the top rating of AAA. This decision by Moody's, in conjunction with the House-passed budget reconciliation bill this week, has brought U.S. fiscal policy back into the spotlight for financial markets.

Topic of the week: Will tariffs spur a resurgence of US Manufacturing Jobs?

• The goals of the administration's trade regime changes are varied, but a resurgence of American manufacturing jobs is certainly a priority. Could higher trade barriers spur a rebound in U.S. manufacturing employment?

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