Month-In-Review: April 2023

Another U.S. bank teetering into default at the end of the month brought market fragility back into the spotlight in April. At the same time, a solid Q1 GDP report underscored the ongoing resilience of the U.S. consumer and by extension, the broader economy. While pockets of weakness continue to emerge, particularly in housing and manufacturing as prices remain still too high and the Fed raises the cost of capital, relative calm – and in some cases optimism – among market participants/market metrics persists. Furthermore, while off earlier peak levels, the lack of momentum in disinflation is far from convincing that earlier policy initiatives have done enough to reinstate price stability. Thus, while a May rate increase has been priced into expectations for some time, the longer-run pathway for additional Fed action remains uncertain with policy makers presuming more work to be done, while investors are gearing up for rate cuts?sooner than later.??

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Market Activity and Commodities

·??????Equities – Stocks ended April higher after finishing with gains in March. Beginning at 4,109.31, the S&P 500 rose 1.5% in April, closing at 4,169.48. The Dow, meanwhile, gained 2.5%, rising from 33,274.15 to 34,098.16, marking its best monthly gain since January. Additionally, the Nasdaq inched up 0.04% at the start of the fourth quarter, closing at 12,226.58.

·??????Treasuries – Treasury yields ended slightly lower in April after also finishing down in March. The 10-year Treasury yield declined 4bps from 3.47% to 3.43%. The 2-year Treasury yield, meanwhile, ended April down 2bps at 4.01%.

·??????Oil & Gas????????????

o??(Apr 3) – A surprise oil price shock pushed crude prices up 8% and above $81 a barrel for the first time since January. According to reports, the reduction in output will be led by Saudi Arabia with a cut of 1.2m day beginning in May and continuing to the end of 2023. Additionally, Russia’s recent production cuts of 500k will reportedly be extended until the end of the year.?In total, an estimated 3.7m barrels, or roughly 3% of the world’s oil will be taken offline.

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National Growth and Outlook

• NFIB Small Business Optimism (Apr 11) – The NFIB Small Business Optimism Index ?declined from 90.9 to 90.1 in March, less than the expected drop to 89.8, albeit a three-month low.?

·??????Leading Index (Apr 20) – The Leading Index fell 1.2% at the end of Q1, more than the 0.7% decline expected and following a 0.5% decrease in February.

·??????Chicago Fed National Activity Index (Apr 24) – The Chicago Fed National Activity Index remained at a reading of -0.19 in March for the second consecutive month. According to the median estimate on Bloomberg, the index was expected to decline to -0.20. The Chicago Fed Index draws on 85 economic indicators; a reading below zero indicates below-trend growth in the national economy and a sign of easing pressures on future inflation. In March, 43 of the 85 monthly individual indicators made positive contributions, while 42 made negative contributions.

·??????GDP (Apr 27) – GDP rose 1.1% on an annualized basis in the preliminary Q1 report, following a 2.6% gain in the fourth quarter and the weakest quarterly pace since Q2 2022. According to the median estimate on Bloomberg, activity in the first three months of 2023 was expected to rise 1.9%. In the details of the report, personal consumption rose 3.7% in Q1, less than the 4.0% gain expected and following a 1.0% rise in Q4. Goods consumption rose 6.5% in Q1, following four consecutive quarters of decline. Durable goods consumption rose 16.9% and nondurables consumption rose 0.9%. Services consumption, meanwhile, increased 2.3% in Q1,the largest gain in two quarters. Gross private investment, a gauge of business spending, on the other hand, slumped 12.5% in Q1, the largest quarterly decline in three quarters. Fixed investment declined 0.4%, marking four consecutive quarters of decline. Nonresidential investment, including office buildings and factories, rose 0.7% due to a 11.2% increase in structures investment and a 3.8% gain in intellectual property investment. Equipment investment, however, dropped 7.3% in Q1 following a 3.5% decline in Q4. Additionally, residential investment fell 4.2%, the eighth consecutive quarter of decline. On the trade side, exports rose 4.8% and imports increased 2.9% in the preliminary Q1 report. Finally, government consumption rose 4.7%. Federal spending gained 7.8%, national defense spending rose 5.9%, and state and local spending increased 2.9%.

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Employment

• JOLTS (Apr 4) – The number of job openings according to JOLTS – the Job Openings and Labor Turnover Survey – declined from 10.6M to 9.9M in February, the lowest since May 2021. According to the median estimate on Bloomberg, the number of job openings was expected to drop to 10.5M.
• Jobless Claims
• (Apr 6) – Initial jobless claims fell 18k from 246k to 228k in the week ending April 1, the second consecutive week of decline and a five-week low. According to Bloomberg, jobless claims were expected to rise to 200k. Continuing claims, however, or the total number of Americans claiming ongoing unemployment benefits, were little changed at 1.82M in the week ending March 25.
• (Apr 13) – Initial jobless claims rose 11k from 228k to 239k in the week ending April 8, a two-week high. According to Bloomberg, jobless claims were expected to rise to 235k. Continuing claims, however, or the total number of Americans claiming ongoing unemployment benefits, declined from 1.82M to 1.81M in the week ending April 1.?
• (Apr 20) – Initial jobless claims rose 5k from 240k to 245k in the week ending April 15, a three-week high. According to Bloomberg, jobless claims were expected to rise to 240k. Continuing claims, meanwhile, or the total number of Americans claiming ongoing unemployment benefits, increased from 1.80M to 1.87M in the week ending April 8.
• (Apr 27) – Initial jobless claims unexpectedly fell 16k from 246k to 230k in the week ending April 22, a three-week low. According to Bloomberg, jobless claims were expected to rise to 248k. Continuing claims, meanwhile, or the total number of Americans claiming ongoing unemployment benefits, fell from 1.861M to 1.858M in the week ending April 15.
• Nonfarm Payrolls (Apr 7) – Nonfarm payrolls rose by 236k in March, slightly more than the 230k gain expected, according to Bloomberg. February payrolls, meanwhile, were revised higher from a 311k gain to a 326k increase. However, with additional revisions to previous months, the?overall change in nonfarm payrolls (March data + net revisions) was 219k. In the details of the report, private payrolls rose by 189k in March, following a 266k gain in February. Goods-producing payrolls, however, declined by 7k due to a 9k drop in construction payrolls, and a 1k decline in manufacturing payrolls, the second consecutive monthly decline. Private service producing payrolls rose by 196k in March, following a 255k gain in February. Leisure and hospitality led the gain in service payrolls in March, rising 72k following a 90k rise the month prior. Education and health payrolls rose 65k, business services payrolls gained 39k, despite an 11k drop in temporary help payrolls. Also, trade and transport payrolls increased 4k, despite a 15k decline in retail trade payrolls, the first monthly decline since November. Additionally, information payrolls rose 6k in March, following three consecutive months of decline, while financial payrolls declined 1k, for the third consecutive month. Additionally, government payrolls rose by 47k in March, following a 60k gain in February.
• Participation Rate (Apr 7) – The civilian labor force rose by 480k in March following a 419k increase in February. Therefore, the participation rate unexpectedly ticked up from 62.5% to 62.6% in March, the highest since March 2020, albeit still below the pre-pandemic rate of 63.3%. According to Bloomberg, the participation rate was expected to remain at 62.5% for the second consecutive month.
• Unemployment Rate (Apr 7) – Household employment rose by 577k in March following a 177k rise the month prior. With a 480k rise in the labor force, the unemployment rate unexpectedly rose from 3.4% to 3.6% in February, a three-month high. According to Bloomberg, the unemployment rate unexpectedly declined from 3.6% to 3.5% in March, a two-month low. According to Bloomberg, the unemployment rate was expected to remain steady at 3.6% at the end of the third quarter.
• Average Hourly Earnings (Apr 7) – Average hourly earnings rose 0.3% in March, as expected and following a 0.2% increase in February. Year-over-year, wages rose 4.2%, down from the 4.6% gain in February.
• Average Weekly Hours (Apr 7) – The average workweek ticked down from 34.5 hours to 34.4 hours in March, a three-month low.

Consumer Activity and Confidence

• Vehicle Sales (Apr 3) – Total vehicle sales dropped from 14.89m to a 14.82m unit pace in March, less than the expected decline to 14.50m and the lowest since December. Over the past 12 months, however, vehicle sales rose 9.3%, albeit down from a 9.41% gain the month prior and the weakest annual growth rate in three months.
• Consumer Credit (Apr 7) – Consumer credit rose by $145.3b in February following a $19.5b gain in January. According to the median estimate on Bloomberg, consumer credit was expected to increase by $25.0b in the second month start of the year.
• Retail Sales (Apr 14) – Retail sales dropped 1.0% in March, surpassing the 0.5% decline expected according to Bloomberg and following a 0.2% decrease in February. Year-over-year, retail sales rose 2.9% in March, down from a 5.9% annual rise in February. Car sales fell 1.6% in March following a 1.3% decline the month prior, while gasoline stations sales dropped 5.5%, the largest monthly decline since April 2020. Excluding autos, retail sales fell 0.8% in March, but climbed 3.6% over the past 12 months. Excluding autos and gasoline, retail sales fell 0.3% but increased 6.0% year-over-year. In the details of the report, non-store retailer sales rose 1.9%, health and personal care sales gained 0.3%, miscellaneous sales and sporting goods sales both increased 0.2%, and eating and drinking sales rose 0.1% at the end of Q1. On the weaker side, general merchandise sales dropped 3.0% due to a 2.5% decline in department store sales, building materials sales decreased 2.1%, and clothing sales declined 1.7%. Also, furniture sales fell 1.2%, and food and beverage sales slipped 0.1% in March.
• University of Michigan Consumer Sentiment
• (Apr 14) – The University of Michigan Consumer Sentiment Index increased from 62.0 to a reading of 63.5 in the preliminary April report, a two-month high. According to the median estimate on Bloomberg, sentiment was expected to tick up to a reading of 62.1 at the start of the second quarter. In the details of the report, an assessment of current conditions rose from 66.3 to 68.6, and an assessment of future conditions increased from 59.2 to 60.3 in the preliminary April report, a two-month high.
• (Apr 28) – The University of Michigan Consumer Sentiment Index was unrevised at a reading of 63.5 in the final April print, a two-month high. In the details of the report, the gauge of current conditions was revised down from 68.6 to 68.2, albeit still a two-month high, while the gauge of future conditions was revised up slightly from 60.3 to 60.5 in the final April print, also a two-month high.
• Consumer Confidence (Apr 25) – Consumer confidence, according to the Conference Board, declined from 104.0 to 101.3 in April, a nine-month low. In the details of the report, a gauge of current conditions rose from 148.9 to 151.1, while a gauge of future conditions dropped from 74.0 to 68.1 at the start of the second quarter, the lowest reading since July.
• Consumer Spending and Income (Apr 28) – Personal income rose 0.3% in March, a tenth of a percentage point more than the 0.2% gain expected according to Bloomberg, and following a 0.3% increase in February. Consumer spending, meanwhile, was flat (0.0%) in March, also a tenth of a percentage point more than the 0.1% decline expected and following a 0.1% rise in February. Year-over-year, consumer spending increased 6.2% and personal income rose 6.0%. Adjusting for inflation, real consumer spending was flat (0.0%) in March, while real income rose 0.3 in the third month of the year, following a 0.2% gain in February. Over the past 12 months, real spending rose 1.9%, and real disposable personal income gained 1.7%, the largest annual increase since March 2021.

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Inflation

• CPI (Apr 12) – The CPI rose 0.1% in March, slightly less than the 0.2% increase expected and following a 0.4% gain in February. Year-over-year, consumer prices rose 5.0%, down from the 6.0% pace reported the month prior and the ninth consecutive month of cooling price pressures. Food prices were flat (0.0%), while energy prices dropped 3.5% in March, following a 0.6% decline in February. Excluding food and energy costs, the core CPI rose 0.4%, as expected and following a 0.5% increase in the second month of the year. Year-over-year, the core CPI increased 5.6%, up, however, from the 5.5% gain the month prior. In the details of the report, airline fares jumped 4.0%, shelter prices increased 0.6%, thanks to a 0.5% rise in the OER, and other goods and services costs increased 0.5%. Also, apparel prices increased 0.3%, education and communication prices increased 0.2%, and recreation prices rose 0.1%. On the other hand, commodities prices declined 0.3%, and medical care prices also fell 0.3%, the third consecutive month of decline. Additionally, transportation prices declined 0.5%, due to a 0.9% drop in used cars and trucks prices. New vehicle prices, however, rose 0.4%.
• PPI (Apr 13) – The PPI unexpectedly fell 0.5% in March, following a flat reading (0.0%) the month prior. According to Bloomberg, the PPI was expected to be flat (0.0%) at the end of Q1. Year-over-year, producer prices rose 2.7% in March, less than the 3.0% increase expected, and the smallest annual gain since January 2021. Food prices rose 0.6%, following three consecutive months of decline, while energy prices dropped 6.4% in March following a 0.3% decline in February. Excluding food and energy costs, the core PPI declined 0.1% following a 0.2% gain in February. According to Bloomberg, the core PPI was expected to rise 0.2%. Year-over-year, the core PPI increased 3.4% in March, as expected and following a 4.8% gain in February.
• PCE (Apr 28) – The PCE rose 0.1% in March, as expected and following from the 0.3% increase in February. Year-over-year, however, headline inflation increased 4.2%, slightly more than the 4.1% annual increase expected and following a 5.1% rise in February. Excluding food and energy, the core PCE rose 0.3% in March, also as expected. Year-over-year, core inflation increased 4.6% following a similar annual increase last month.

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Manufacturing and Production Activity

• ISM Manufacturing (Apr 3) – The ISM Manufacturing Index declined more than expected from 47.7 to reading of 46.3 in March, the fifth consecutive month in contractionary territory (a reading below 50) and the lowest reading since May 2020. In the details of the report, prices paid declined from 51.3 to 49.2, new orders dropped 2.7 points to 44.3, exports decreased from 49.9 to 47.6, and imports declined by two points to 47.9 in March. Additionally, supplier deliveries ticked down from 45.2 to 44.8, and employment plunged from 49.1 to 46.9, the lowest reading since July 2020. On the other hand, production inched up from 47.3 to 47.8 in March.
• ISM Services (Apr 5) – The ISM Services Index declined from 55.1 to a reading of 51.2 in March, well surpassing the expected decline to 54.4 and a three-month low. In the details of the report, employment declined by 2.7 points to 51.3, a two-month low, new orders dropped from 62.6 to 52.2, supplier deliveries declined from 47.6 to 45.8, and backlog of orders slipped from 52.8 to 48.5 in March. Additionally, prices paid declined 65.6 to 59.5, but still averaging a reading of 67.0 over the past six months.
• Industrial Production (Apr 14) – Industrial production rose 0.4% in March, more than the 0.2% gain expected and following a 0.2% increase in February.
• Capacity Utilization (Arp 14) – Capacity utilization ticked up from 79.6% to 79.8% at the end of the first quarter, a four-month high.
• Empire Manufacturing (Apr 17) – The Empire Manufacturing Index jumped from -24.6 to a reading of +10.8 in April, surpassing the expected gain to a reading of -18.0 and the highest reading since July of last year. In the details of the report, new orders increased from -21.7 to +25.1, and the six-month ahead outlook jumped from 2.9 to 6.6 at the start of Q2, a two-month high. On the other hand, prices paid fell from 41.9 to 33.0 in April, a three-month low.
• Philly Fed Business Outlook Survey (Apr 20) – The Philly Fed Index unexpectedly fell from -23.2 to -31.3 in April, the lowest reading since May 2020 and the eighth consecutive month of decline. According to the median estimate on Bloomberg, the index was expected to rise to -19.3. In the details of the report, employment rose to a two-month high from -10.3 to -0.2, and new orders increased from a reading of -28.2 to -22.7 in April. On the other hand, delivery time ticked down from -24.3 to -25.0, prices paid declined from 23.5 to 8.2, and prices received dropped from 7.9 to -3.3 in April. The six-month outlook index, meanwhile, rose from -8.0 to -1.5 in April, a two-month high.
• Dallas Fed Index (Apr 24) – The Dallas Fed Manufacturing Activity Index declined further from -15.7 to -23.4 in April. According to the median estimate on Bloomberg, the index was expected to rise to a reading of -12.0 in April. In the details of the report, new orders rose from -14.3 to -9.6, averaging -12.5 over the past six months, and capacity utilization increased from 2.3 to 3.9 in April. On the other hand, employment declined from a reading of 10.4 to 8.0, production fell from 2.5 to 0.9, and the six-month general business outlook index decreased further into negative territory from -11.2 to -16.6 in April, the lowest reading since November.
• Richmond Fed Manufacturing (Apr 25) – The Richmond Fed Manufacturing Index dropped five points to a reading of -10 in April, surpassing the decline to -8 expected, a two-month low and the fourth consecutive month of a negative print. In the details of the report, new order volume fell from -11 to -20, and order backlogs ticked down from -14 to -31 in April, a three-month low. Additionally, shipments dropped from +2 to -7, and capacity utilization decreased four points to -14 in April. On the other hand, the number of employees rose by five points to a reading of zero at the start of the second quarter.
• Durable Goods (Apr 26) – Durable goods orders rose 3.2% in March, the largest monthly gain since December and following two consecutive monthly declines. According to the median estimate on Bloomberg, durable goods orders were expected to rise 0.7%. Year-over-year, headline orders rose 4.6% in March, up from the 2.0% annual increase the month prior. Transportation orders jumped 9.1%, following a 3.1% decline the month prior, due to 78.4% rise in civilian aircraft orders. Vehicle and parts orders, however, fell 0.1%. Excluding transportation, durable goods orders rose 0.3% in March and increased 0.5% over the past 12 months. In other details, computers and electronics orders rose 1.9%, and electrical equipment orders rose 0.8% at the end of Q1. Also, fabricated metals orders, primary metals orders, and machinery orders all rose 0.1% in March.
• Capital Goods (Apr 26) – Capital goods orders rose 8.7% in March. Nondefense capital goods orders, meanwhile, increased 10.4%, following a 2.3% drop in February. However, capital goods orders excluding aircraft and defense – a proxy for business investment – fell 0.4% in March following a 0.7% decline the month prior. Year-over-year, business investment increased 2.0%, down from the 3.6% annual gain in February.
• Kansas City Fed Manufacturing (Apr 27) – The Kansas City Fed Index dropped ten points to a reading of -10 in April, the lowest reading since May 2020. According to the median forecast, the index was expected decline two points to a reading of -2. In the details of the report, employment dropped from +18 to -1, and shipments plunged from a reading of +6 to -13 in April. Additionally, production declined from +3 to -21, order backlogs fell from -18 to -26, and the volume of new orders fell -13 to -21. On the other hand, prices paid gained from 30 to 32 at the start of the second quarter.
• Chicago PMI (Apr 28) – The Chicago PMI ticked up from 43.8 to 48.6 in April, an eight-month high. According to Bloomberg, the index was expected to decline to 43.6 at the start of Q2. In the details, prices paid, employment and supplier deliveries rose, while new orders, inventories and production fell, signaling contraction.

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Housing Market Activity

• Construction Spending (Apr 3) – Construction spending unexpectedly declined 0.1% in February following a 0.4% gain in February. According to the median estimate on Bloomberg, construction spending was expected to be flat (0.0%). Over the past 12 months, however, construction spending rose 5.2% in the second month of the year, the weakest annual pace since February 2021.
• NAHB Housing Market Index (Apr 17) – The NAHB Housing Market Index ticked up from 44 to a reading of 45 in April, as expected and a seven-month high.
• Building Permits (Apr 18) – Building permits decreased 8.8% in March, pulling the annual pace down from 1.550M to 1.413M, also a two-month low. Building permits were expected to drop 6.5%, according to Bloomberg. Single family permits rose 4.1%, while multi-family permits dropped 22.1%. Year-over-year, building permits declined 24.8% in March following a 16.5% decrease in February, and marking the eighth consecutive month of decline.
• Housing Starts (Apr 18) – Housing starts fell 0.8% in March, pulling the annual pace down from 1.432M to 1.420M, a two-month low. Starts were expected to decline 3.5%, according to the median forecast on Bloomberg. Single family starts increased 2.7%, while multi-family starts declined 5.9%. Year-over-year, housing starts fell 17.2% in March, the eleventh consecutive month of decline. On a regional basis, starts rose in two of the four regions of the country in March. Starts jumped 72.4% in the Northeast and 6.8% in the South. However, starts fell 23.6% in the Midwest and 28.1% in the West.
• Existing Home Sales (Apr 20) – Existing home sales declined 2.4% in March from 4.55m to an annualized pace of 4.44m, a two-month low. According to the median forecast, existing home sales were expected to decline 1.8% in at the end of Q1. Year-over-year, however, existing home sales fell 22% in March, the 20th consecutive month of decline. Despite a fall in sales, the months’ supply of existing homes remained at 2.6 months for the second month, averaging 2.7 months over the past three months. From a price standpoint, the median cost of a previously owned home fell 0.9% in March from a year earlier to $376k.
• New Home Sales (Apr 25) – New home sales unexpectedly jumped 9.6% in March from 640k to 683k, a one-year high. According to the median estimate on Bloomberg, new home sales were expected to decline 1.3% at the end of Q1. Over the past 12 months, however, sales fell 3.4%, the thirteenth consecutive month decline. Due to a rise in sales, the months’ supply of new homes ticked down from 8.4 months to 7.6 months. From a price standpoint, the median cost of a newly constructed home rose 3.2% from the month prior to $450k. Year-over-year, new home prices increased 3.2%.
• S&P/CS 20 City Index (Apr 25) – The S&P Case-Shiller 20 City Home Price Index unexpectedly rose 0.06% in February following seven consecutive months of decline. Over the past 12 months, the 20-city index rose just 0.4%, down from the 2.6% annual increase in January. On a national level, home prices increased 0.2% in February, and improved 2.1% over the past 12 months, albeit down from the 3.8% rise in January.
• Pending Home Sales (Apr 27) – Pending home sales unexpectedly dropped 5.2% in March following a 0.8% gain in February. According to the median estimate on?Bloomberg, pending home sales were expected to rise 0.8%. Over the past 12 months, pending home sales dropped 23.3%, the 16th?consecutive month of decline.

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Trade and Currency

• U.S. Dollar
• (Apr 18) – Following a report from Bloomberg News suggesting the U.S. dollar may be losing its reserve status at a faster pace “than generally accepted,” the dollar declined 0.26% to $101.83.
• Trade Balance (Apr 5) – The U.S. trade deficit widened 2.7% from -$68.7b to -$70.5b in February, marking the third consecutive month of a widening deficit. According to the median forecast, the deficit was expected to widen to -$68.8b. The value of imports declined 1.5% to $321.7b, while exports dropped 2.7% to $251.2b.
• Import & Export Prices (Apr 14) – Import prices declined 0.6% in March following a 0.2% decrease the month prior. Export prices, meanwhile, fell 0.3% at the end of the first quarter. According to the median forecast, import prices were expected to decline 0.1%, while export prices were expected to be flat (0.0%) at the end of the first quarter. Over the past 12 months, import prices declined 4.6% and export prices dropped 4.8%.

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?Monetary Policy, Reports, and Commentary

• Atlanta Fed GDPNow Forecast

o??(Apr 28) – Following a 1.1% gain in the preliminary Q1 GDP report, the Atlanta Fed’s GDPNow’s initial forecast for Q2 is 1.7%.

• Fed Speak/News
• (Apr 5) – According to Cleveland Fed President Loretta Mester, rates are likely to move higher and remain elevated for some time as the Fed continues its fight against inflation.?Despite the recent volatility in the banking sector and the market’s belief the Fed is done, the Cleveland Fed President suggested rates are likely to move higher from here with the improvement in inflation – or lack thereof – dictating exactly how much higher rates will go.?"In my model projection, to put inflation on a sustained downward projection to 2% and to keep inflation expectations anchored, monetary policy moves somewhat further into restrictive territory this year with the fed funds rate moving above 5% and the real fed funds rate staying in positive territory for some time," she said. “Precisely how much higher the federal funds rate will need to go from here and for how long policy will need to remain restrictive will depend on how much inflation and inflation expectations are moving down."?
• (Apr 5) – Boston Fed President Susan Collins said given the recent banking crisis, she has not adjusted higher – or lower – her expectations for rates. Emphasizing the likely tightening in credit, Collins suggested an adjustment in organic credit conditions could do some of the Fed’s work, limiting the need to raise rates as high as previously expected. That being said,?Collins was clear she anticipates still a further backup in rates, just not as high as before the collapse of Silicon Valley Bank.?“In terms of my perspective, I think there are many things that are important. Let me highlight two. One is that a holistic look at the data before each meeting, not making decisions in advance is really important. And following through on our commitment to bringing inflation down, given the costs and the toll that I just mentioned is really important,” Collins said speaking to NPR’s Marketplace.?
• (Apr 5) – According to St Louis Fed President James Bullard, the recent turmoil in financial markets does not signal a need for a more benign approach to policy and in fact, given the level of inflation, Bullard said he has increased his expectations for rates. “You can walk and chew gum at the same time…You’ve got the macroprudential tools for financial stress and you’ve got monetary policy to fight inflation,” he said speaking to Bloomberg Television.
• (Apr 19) – According to St. Louis Fed President James Bullard, the Fed has significantly more work to do in terms of taming inflation. Speaking in an interview with Reuters, Bullard said that despite recent market turmoil, he has lifted his expectations for policy from two to three more rate hikes. “The labor market just seems very, very strong,” Bullard explained. “And the conventional wisdom is that if you have a strong labor market that feeds into strong consumption ... And that’s a big chunk of the economy...it doesn't seem like the moment to be predicting that you have a recession in the second half of 2023," he said.
• (Apr 20) – Speaking to the Money Marketeers of New York, New York Fed President John Williams outlined his expectations for modest growth this year as inflation and the labor market cools. He also reiterated the Fed’s ongoing commitment to lower inflation. “I am confident that we will attain and maintain a sufficiently restrictive stance to bring inflation down to our 2 percent longer-run goal,” Williams said.
• (Apr 20) – Speaking in a NPR Marketplace interview, Chicago Fed President Austan Goolsbee commented on the recent bank failures, noting, “My message is be prudent, be patient…if banks are pulling back it behooves us to pay attention to the data and ask how much of our normal monetary policy job is getting done for us by the credit conditions.”

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·??????March 22 FOMC Meeting Minutes (Apr 12)

o??The latest FOMC meeting minutes show at least some Fed officials – like the market – were uneasy regarding the banking market turmoil just days before the latest rate decision. In fact, several officials suggested they had considered a potential pause in March given the “uncertainty in the banking sector.” Ultimately, however, given the “powerful” and stabilizing actions by the Fed and other government agencies to address financial market stress, participants agreed it was appropriate to move forward with an additional 25bp hike in March. Going forward, according to the minutes, officials remain cautious regarding policy as the outlook remains highly uncertain. Several officials “emphasized the need to retain flexibility and optionality in determining the appropriate stance of monetary policy given the highly uncertain economic outlook.” In fact, the Fed staff said it was now including a “mild recession” starting later this year in their forecasts “given their assessment of the potential economic effects of the recent banking-sector developments,” with the risks to economic activity tilted to the downside. Inflation, meanwhile, remains a sizable concern among policy makers with relatively “less” progress than previously anticipated or expected. According to the minutes, “With inflation still well above the Committee's longer-run goal of 2 percent, participants agreed that inflation was unacceptably high. Participants commented that recent inflation data indicated slower-than-expected progress on disinflation.”

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Domestic News and Activity?

• Politics and the Biden Administration
• (Apr 10) – The global economy may be heading for an extended period of lackluster growth amid tighter monetary policy initiatives and less supportive fiscal policy. According to International Monetary Fund Managing Director Kristalina Georgieva, global economic growth will likely fall below 3% this year and remain near that level for the next five years, marking the lowest medium-term global growth forecast since 1990.?“With rising geopolitical tensions, with inflation still running high, a robust recovery remains elusive…That harms the prospects of everyone, especially for the most vulnerable people and most vulnerable countries,” Georgieva said. Meanwhile, growth forecasts for the U.S. were revised higher – at least in the near term – with consumer resilience prompting economists to push out near-term recessionary calls.
• (Apr 12) – Treasury Secretary Janet Yellen downplayed the potential risks of the recent market turmoil, reiterating the official?tagline of a solid and resilient banking sector.?Speaking at a news conference, Yellen said, "I wouldn't overdo the negativism about the global economy. The U.S. banking system remains sound.” “I'm not anticipating a downturn in the economy, although that remains a risk," she added.
• (Apr 20) – Speaker Kevin McCarthy introduced the "Limit, Save, Grow Act" as a solution to the debt-ceiling saga. The bill would raise the $31.4T debt ceiling by $1.5T, which would reportedly be sufficient to avert a default until Q1 2024. At the same time, the bill aims to limit federal spending and reduce budget deficits by $4.5T over the next decade by bringing discretionary spending back to last year’s levels and capping future growth in spending at 1% a year for the next 10. “If Washington wants to spend more it will have to come together and find savings elsewhere just like every single household in America,” McCarthy said on the House floor.
• (Apr 25) – President Biden announced he will officially seek a second term in office, potentially setting the stage for a second round matchup between Biden and Trump, if the latter can secure the Republican nomination. Biden will no doubt focus on his handling of the COVID-19 crisis, as well as the advancements made by his administration in environmental policy and the passing of the CHIPS and Science Act of 2022. However, with inflation running rampant over the past two years, consumers’ mindset will play a big role in their voting decisions, particularly if the U.S. economy slips into recession.
• (Apr 26) – The debate over the debt ceiling continued with the government approaching its fourth month of “extraordinary measures.” While Democrats petitioned for a “clean” increase, Republicans have largely been opposed to an increase without provisions regarding a reduction in future spending.?Of course, regardless of which side one supports, the consequences of dragging out the saga or worse, failing to raise the debt ceiling, impact all.?According to Treasury Secretary Janet Yellen,?failure to raise the debt ceiling and resulting in a default on U.S. government debt would lead to an "economic catastrophe" “A default would raise the cost of borrowing into perpetuity. Future investments would become substantially more costly," Yellen said. Former Treasury Secretary Larry Summers also warned of dire consequences for the U.S. economy as a result of earlier policy decisions to keep rates low and implement massive stimulus during the pandemic. Speaking at the Morningstar Investment Conference in Chicago, he said, this country has moved from one of 2% inflation to 5%. Thus, going forward, returning the economy to price stability will require a significant slowdown in the economy.?“I think we’re going to have difficulty getting near a 2% inflation target until and unless the economy slows down substantially,” Summers said.?

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International News and Activity?

·??????U.K.

o??(Apr 19) – The latest inflation report in the U.K. showed the Consumer Price Index (CPI) rose 10.1% in March from this time last year following a 10.4% annual gain in February. This marked the?seventh consecutive month above 10% inflation.

·??????China

o??(Apr 3) – Chinese manufacturing activity came under pressure despite a recent rollback of COVID-19 safety protocols. The Chinese Caixin manufacturing index fell from 51.6 to 50.0 in March, a two-month low and the first indication of stagnant activity after February’s expansion, or a reading above 50.?Coupled with indications of weakness in housing and consumer spending particularly on large durable items, some analysts tempered expectations for a more robust return of Chinese activity, at least in the near term.??

o??(Apr 18) – China’s economy grew at a 4.5% pace in the first quarter, according to Bloomberg data, surpassing expectations for a 4.0% rise. The boost was led by a strong showing in consumption with retail sales surging near 11% in March alone. According to the report, however, industrial output and urban investment were still somewhat lackluster with residential investment still in net contractionary territory, raising questions about the sustainability of more robust topline growth beyond Q1.?

·??????Australia

o??(Apr 4) – The Reserve Bank of Australia (RBA) opted to take a pause in rate hikes, at least for now. The RBA announced it will hold the cash target rate steady at 3.60% in order to measure the full effect and impact of earlier policy tightening. "The decision to hold interest rates steady this month provides the board with more time to assess the state of the economy and the outlook, in an environment of considerable uncertainty," Philip Lowe, Australia's central bank governor said in the April statement. However, “Some further tightening of monetary policy may well be needed,” he cautioned.

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-Lindsey Piegza, Ph.D., Chief Economist