Weekly economic and financial commentary

Summary

United States: An Orderly Slowing, for Now

• The latest data signal economic growth is moderating but holding up through May, leaving firms generally still reluctant to let go of workers. Although growth is slowing in an orderly fashion for now, we're only beginning to see the effects of tariffs and look for growth to moderate in the second half of the year.

• Next week: CPI (Wed.), PPI (Thu.)

International: European Central Bank Cuts Rates, Maintains Modest Easing Bias

• The European Central Bank reduced its Deposit Rate by 25 bps to 2.00% at this week's meeting. Its medium-term forecasts envisaged underlying inflation slowing slightly below 2%, implying a mild easing bias, though at the same time ECB President Lagarde said the central bank was "getting to the end of a monetary policy cycle." With Q1 GDP data also showing resilience, we expect the ECB to pause in July, and a final 25 bps rate cut in September.

• Next week: Mexico CPI inflation (Mon.), U.K. Weekly Earnings (Tue.), Brazil CPI inflation (Tue.)

Interest Rate Watch: This Might Take a Minute

• The minutes from the Fed's May policy meeting suggest policymakers still place greater emphasis on risks of cost pass through rather than rising unemployment. Recent survey evidence suggests businesses have or believe they can pass on a decent portion of tariff-related costs, but it may take some time for it to materialize in the hard inflation data. We believe the FOMC will hold at its June meeting and is unlikely to adjust policy until it gains further clarity.

Topic of the Week: Implications of a GSE Conservatorship Exit

• The Trump administration is exploring options to end GSE conservatorship and has expressed intent to take Fannie Mae and Freddie Mac public again. Such a move could bring change to the mortgage market and residential sector of the U.S. economy.

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