Perhaps No Pause

Dallas Fed President Lorie?Logan may not be in favor of a pause in rate hikes, at least not yet.?Speaking at the Texas Bankers Association Annual Convention in San Antonio yesterday, Logan said,?“The data in coming weeks could yet show that it is appropriate to skip a meeting. As of today, though, we aren’t there yet.”

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Of course, as Fed Governor Philip Jefferson noted, there is a?“considerable amount of data on economic activity"?for April and May that have yet to come in before a decision is made in June. According to Jefferson,?in determining whether or not it is appropriate to pause next month he's considering monetary policy's?"long and variable lags,"?tighter lending standards, topline growth, and the still-tight labor market.?

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In May, the Fed indicated a willingness to move to the sideline and still may do so. But while the Fed is watching the data, as Jefferson suggests, with still solid consumer activity, a tight labor market and elevated inflation, for now the data does not support a pause. Thus, any decision to pause – at least at this stage – would be made in spite of the data.?

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Following Logan’s comments, the market is increasingly considering an 11th?round rate hike come June. According to the CME FedWatch Tool, the probability of a June rate hike is now priced in at a 39% probability compared to a 20% probability at the start of the week.?

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Later today at 11:00 a.m. ET, Fed Chair Jerome Powell will speak on a panel during a monetary policy research conference hosted by the Fed in Washington.

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On the economic calendar, yesterday?initial jobless claims declined by 22k from 264k to 242k in the week ending May 13, a two-week low. According to?Bloomberg,?jobless claims were expected to decline to 253k. Due to reported fraud, however, the latest data offers little additional insight into the health of the labor market. According to reports, Massachusetts accounted for nearly half of the nationwide increase in unadjusted claims last week.

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Continuing claims, meanwhile, or the total number of Americans claiming ongoing unemployment benefits, declined from 1.807M to 1.799M in the week ending May 6.

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Also yesterday, the Philly Fed Business Outlook rose from -31.3 to -10.4 in May, the highest reading since January, albeit the ninth consecutive month of a negative print.

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In the details of the report, prices paid rose from 8.2 to 10.9, new orders gained from -22.7 to -8.9, and shipments increased from -7.3 to -4.7 in May. Also, delivery times gained from -25.0 to -9.3 and inventories rose from -17.9 to +6.4. On the other hand, employment fell from -0.2 to -8.6, and the six-month outlook index dropped from -1.5 to -10.3 in May, the lowest reading since October.

Also, existing home sales fell 3.4% in April from 4.43m to 4.28m, a three-month low. According to the median estimate on?Bloomberg, existing home sales were expected to decline 3.2% at the start of Q2. Year-over-year, existing home sales dropped 23% in April, the 21st?consecutive month of decline. Due to a decline in sales, the months’ supply of existing homes rose from 2.6 to 2.9 months, averaging 2.7 months over the past three months. From a price standpoint, the median cost of a previously owned home fell 1.7% in April from a year earlier to $389k.

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Finally yesterday, the Leading Index declined 0.6% in April, as expected and following a 1.2% drop in March.

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Today the economic calendar is empty.

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Next week the economic calendar?begins?on Tuesday with a look at new home sales. Following this week’s decline in existing home sales, purchases of new homes are expected to decline 3.4% in April.

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Also next week, a number of manufacturing reports will be released beginning with the S&P Global reports, along with the Richmond Fed Index on Tuesday. Later in the week on Thursday, the April read on the Chicago Fed Index, as well as the May reading for the Kansas City Activity Index will be released.

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Finally, a preliminary read on durable goods orders will be released on Friday. After a 3.2% gain in March, led by transportation orders, April orders are expected to decline 1.0%.

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The highlight of the week, however, comes on Thursday with a secondary read on Q1 GDP. Slowing from a pace of 2.6% at the end of last year to an originally reported level of 1.1%, topline Q1 growth is expected to remain unrevised.

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The second highlight comes on Friday with a closer look at consumer spending and income growth along with the latest read on the PCE, the Fed’s preferred measure of inflation. The PCE is expected to rise 0.3% in April and 4.3% year-over-year. The core PCE, which excludes food and energy costs, is also expected to increase 0.3% for the month and 4.5% year-over-year.

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Finally, a number of Fed officials will take to the stage next week beginning on Monday with St. Louis Fed President James Bullard and Atlanta Fed President Raphael Bostic followed by Dallas Fed President Lorie Logan on Tuesday, all before the May FOMC meeting minutes are released on Wednesday.?

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?-Lindsey Piegza, Ph.D., Chief Economist?