Latest news with #LukeTilley
Boston Globe
18 hours ago
- Business
- Boston Globe
Gloomy Americans cut back on spending as inflation ticks higher
Get Starting Point A guide through the most important stories of the morning, delivered Monday through Friday. Enter Email Sign Up And incomes dropped after a one-time adjustment to Social Security benefits had boosted payments in March and April. Social Security payments were raised for some retirees who had worked for state and local governments. Advertisement Still, the data suggests that growth is cooling as Americans become more cautious, in part because President Donald Trump's tariffs have raised the cost of some goods, such as appliances, tools, and audio equipment. Consumer sentiment has also fallen sharply this year in the wake of the sometimes-chaotic rollout of the duties. And while the unemployment rate remains low, hiring has been weak, leaving those without jobs struggling to find new work. Advertisement Consumer spending rose just 0.5 percent in the first three months of this year and has been sluggish in the first two months of the second quarter. And spending on services ticked up just 0.1 percent in May, the smallest montly increase in four and a half years. 'Because consumers are not in a strong enough shape to handle those (higher prices), they are spending less on recreation, travel, hotels, that type of thing,' said Luke Tilley, chief economist at Wilmington Trust. Spending on airfares, restaurant meals, and hotels all fell last month, Friday's report showed. At the same time, the figures suggest that President Donald Trump's broad-based tariffs are still having only a modest effect on overall prices. The increasing costs of some goods have been partly offset by falling prices for new cars, airline fares, and apartment rentals, among other items. On a monthly basis, in fact, inflation was mostly tame. Prices rose just 0.1 percent in May from April, according to the Commerce Department, the same as the previous month. Core prices climbed 0.2 percent in May, more than economists expected and above last month's 0.1 percent. Gas prices fell 2.6 percent just from April to May. Economists point to several reasons for why Trump's tariffs have yet to accelerate inflation, as many analysts expected. Like American consumers, companies imported billions of dollars of goods in the spring before the duties took full affect, and many items currently on store shelves were imported without paying higher levies. There are early indications that that is beginning to change. Nike announced this week that it expects US tariffs will cost the company $1 billion this year. It will institute 'surgical' price increases in the fall. It's not the first retailer to warn of price hikes when students are heading back to school. Advertisement Walmart said last month that that its customers will start to see higher prices this month and next as back-to-school shopping goes into high gear. Also, much of what the US imports is made up of raw materials and parts that are used to make goods in the US It can take time for those higher input costs to show up in consumer prices. Economists at JPMorgan have argued that many companies are absorbing the cost of the tariffs, for now. Doing so can reduce their profit margins, which could weigh on hiring. Cooling inflation has put more of a spotlight on the Federal Reserve and its chair, Jerome Powell. The Fed ramped up its short-term interest rate in 2022 and 2023 to slow the economy and combat inflation, which jumped to a four-decade high nearly three years ago. With price increases now nearly back to the Fed's target, some economists — and some Fed officials — say that the central bank could reduce its rate back to a level that doesn't slow or stimulate growth. Trump has also repeatedly attached the Fed for not cutting rates, calling Powell a 'numskull' and a 'fool.' But Powell said in congressional testimony earlier this week that the Fed wants to see how inflation and the economy evolve before it cuts rates. Most other Fed policymakers have expressed a similar view.
Los Angeles Times
20 hours ago
- Business
- Los Angeles Times
Gloomy Americans cut back on spending as inflation ticks higher
A key inflation gauge moved higher in May in the latest sign that prices remain stubbornly elevated while Americans also cut back on their spending last month. Prices rose 2.3% in May compared with a year ago, up from just 2.1% in April, the Commerce Department said Friday. Excluding the volatile food and energy categories, core prices rose 2.7% from a year earlier, an increase from 2.6% the previous month. Both figures are modestly above the Federal Reserve's 2% target. The Fed tracks core inflation because it typically provides a better guide to where inflation is headed. At the same time, Americans cut back on spending for the first time since January, as overall spending fell 0.1%. Incomes dropped a sharp 0.4%. Both figures were distorted by one-time changes: Spending on cars plunged, pulling down overall spending, because Americans had moved more quickly to buy vehicles in the spring to get ahead of tariffs. And incomes dropped after a one-time adjustment to Social Security benefits had boosted payments in March and April. Social Security payments were raised for some retirees who had worked for state and local governments. Still, the data suggests that growth is cooling as Americans become more cautious, in part because President Donald Trump's tariffs have raised the cost of some goods, such as appliances, tools, and audio equipment. Consumer sentiment has also fallen sharply this year in the wake of the sometimes-chaotic rollout of the duties. And while the unemployment rate remains low, hiring has been weak, leaving those without jobs struggling to find new work. Consumer spending rose just 0.5% in the first three months of this year and has been sluggish in the first two months of the second quarter. And spending on services ticked up just 0.1% in May, the smallest montly increase in four and a half years. 'Because consumers are not in a strong enough shape to handle those (higher prices), they are spending less on recreation, travel, hotels, that type of thing,' said Luke Tilley, chief economist at Wilmington Trust. Spending on airfares, restaurant meals, and hotels all fell last month, Friday's report showed. At the same time, the figures suggest that President Donald Trump's broad-based tariffs are still having only a modest effect on overall prices. The increasing costs of some goods have been partly offset by falling prices for new cars, airline fares, and apartment rentals, among other items. On a monthly basis, in fact, inflation was mostly tame. Prices rose just 0.1% in May from April, according to the Commerce Department, the same as the previous month. Core prices climbed 0.2% in May, more than economists expected and above last month's 0.1%. Gas prices fell 2.6% just from April to May. Economists point to several reasons for why Trump's tariffs have yet to accelerate inflation, as many analysts expected. Like American consumers, companies imported billions of dollars of goods in the spring before the duties took full affect, and many items currently on store shelves were imported without paying higher levies. There are early indications that that is beginning to change. Nike announced this week that it expects U.S. tariffs will cost the company $1 billion this year. It will institute 'surgical' price increases in the fall. It's not the first retailer to warn of price hikes when students are heading back to school. Walmart said last month that that its customers will start to see higher prices this month and next as back-to-school shopping goes into high gear. Also, much of what the U.S. imports is made up of raw materials and parts that are used to make goods in the U.S. It can take time for those higher input costs to show up in consumer prices. Economists at JPMorgan have argued that many companies are absorbing the cost of the tariffs, for now. Doing so can reduce their profit margins, which could weigh on hiring. Cooling inflation has put more of a spotlight on the Federal Reserve and its chair, Jerome Powell. The Fed ramped up its short-term interest rate in 2022 and 2023 to slow the economy and combat inflation, which jumped to a four-decade high nearly three years ago. With price increases now nearly back to the Fed's target, some economists — and some Fed officials — say that the central bank could reduce its rate back to a level that doesn't slow or stimulate growth. Trump has also repeatedly attached the Fed for not cutting rates, calling Powell a 'numskull' and a 'fool.' But Powell said in congressional testimony earlier this week that the Fed wants to see how inflation and the economy evolve before it cuts rates. Most other Fed policymakers have expressed a similar view. Rugaber writes for the Associated Press.
Yahoo
16-06-2025
- Business
- Yahoo
Investors (and Trump) are about to find out if Fed still wants rate cuts in 2025
The Federal Reserve is widely expected to hold interest rates steady at its meeting this week, but investors will be watching for something else — whether central bank policymakers are still committed to two rate cuts this year. The Fed's latest round of projections, released Wednesday, will include the much-studied "dot plot," a chart updated quarterly that shows each Fed official's prediction about the direction of the central bank's benchmark interest rate. The last dot plot, released in March, revealed a consensus among Fed officials for two cuts this year as some were already factoring the uncertainties of President Trump's economic policies into their projections. They made the same prediction last December. Many Fed watchers expect central bank officials to stick with what they have already signaled as they weigh numerous unknowns. The latest curveball came late last week as Israel's airstrikes across Iran stoked fears that a protracted war could lead to higher oil prices and inflation this summer. 'This meeting will be all about the dot plot,' former Kansas City Fed president Esther George said. Due to how fluid things are at the moment, she predicts that 'they will be reluctant to signal changes from where they were earlier.' Wilmington Trust chief economist Luke Tilley said he isn't expecting many changes, either. 'I don't think that the dots will change very much, and I don't think the narrative will change very much either. Right now, it's two cuts, and I imagine it will stay pretty much the same.' Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments The Fed and its chair, Jerome Powell, are under an extreme amount of political pressure to speed up the timetable for any cuts, as President Trump continues to hammer Powell publicly for not easing policy sooner. The president last Thursday said he "may have to force something" as part of his ongoing push for the central bank to lower rates by a full percentage point, but he noted that he would not fire Powell before his term is up in 2026 — a move that would almost certainly be challenged legally. He also referred to Powell as a 'numbskull,' adding to a string of insults coined by Trump in recent months. Trump has been citing lower inflation as a reason for the central bank to cut. But Powell and many of his fellow policymakers have made it clear in recent weeks they are still more worried about the risks of higher prices from Trump's tariffs than any rise in unemployment as they weigh both sides of their dual mandate. EY-Parthenon chief economist Gregory Daco expects Powell on Wednesday to stress the risk of longer-lasting inflation because of tariffs and acknowledge that difficult trade-offs may emerge if inflation stays elevated while growth and employment soften. He said Powell will likely emphasize that with inflation still above the Fed's 2% target and the job market consistent with full employment, the bar for cutting rates remains high. 'Chair Powell will likely strike a tone of cautious patience, reiterating that policy remains data dependent and that the Fed is prepared to recalibrate policy over time,' Daco said. The latest measures of inflation have, in fact, shown milder increases in prices even as tariffs were turned on full blast — a trend highlighted last week by Trump and Treasury Secretary Scott Bessent, who told lawmakers last Thursday that 'there is no tariff inflation.' Read more: What Trump's tariffs mean for the economy and your wallet Bessent's pronouncement came one day after a report showing the "core" measure of the Consumer Price Index that excludes volatile food and energy costs rose 2.8% over the past year in May, holding steady from April. The Fed's preferred inflation gauge, the "core" Personal Consumption Expenditures (PCE) index, rose 2.5% in April, down from 2.7% in March. The Fed's goal is to get this number down to 2%. 'There hasn't been a whole lot of inflation pressure other than the shelter index, which continues to drift down,' Tilley said. Fed watchers note that the job market is cooling but not cracking as the unemployment rate holds at 4.2% and wages are still rising at a nearly 4% clip. Thus, the job market is not giving Powell and the Fed many reasons to consider a cut in the near term. Investors are currently betting they won't see that first cut until September at the earliest. 'The real question is what is going to happen in the second half of the year, and will those trends continue?' former Cleveland Fed president Loretta Mester said. 'That's where the high level of uncertainty still is with us, and that I think is why the Fed is on hold until some of that we get a little more clarity about not only the magnitude of the tariffs and the breadth of the tariffs, but what effect they'll have on inflation,' she added. Mester said holding the fed funds rate steady doesn't seem very costly to gain more clarity in the summer on tariffs. But Tilley said he believes the Fed should leave the door open for a rate cut in July, which is when expects the first rate cut. He expects that by that time, the economy will show signs of weakening and the job market will have cooled further. 'They need to leave that door open because a year ago, when they went into the June meeting, they completely took July off the table,' Tilley said. 'In September, they ended up cutting by 50 basis points because they realized they had fallen behind.' JPMorgan chief economist Michael Feroli said he doesn't anticipate a rate cut until December, noting that Fed officials have been 'univocal in their desire to wait and see how higher tariffs affect the economy before acting.' Feroli is looking for an additional three consecutive cuts early next year before reaching a resting spot at 3.25%-3.50%. Rates are currently in the range of 4.25%-4.5%. George said her sense is that the bias is still to cut rates, as officials signaled in March. She noted that Fed governor Christopher Waller has made it clear he sees that possibility and others holding out hope that cuts are still possible. 'I don't think they have the leeway to be acting on or penciling in changes,' George said. 'That would shake the markets around. I don't think they want to cause people to think things are going to be tighter for longer when they're not ready to say that.' Click here for in-depth analysis of the latest stock market news and events moving stock prices
Yahoo
16-06-2025
- Business
- Yahoo
Investors (and Trump) are about to find out if Fed still wants rate cuts in 2025
The Federal Reserve is widely expected to hold interest rates steady at its meeting this week, but investors will be watching for something else — whether central bank policymakers are still committed to two rate cuts this year. The Fed's latest round of projections, released Wednesday, will include the much-studied "dot plot," a chart updated quarterly that shows each Fed official's prediction about the direction of the central bank's benchmark interest rate. The last dot plot, released in March, revealed a consensus among Fed officials for two cuts this year as some were already factoring the uncertainties of President Trump's economic policies into their projections. They made the same prediction last December. Many Fed watchers expect central bank officials to stick with what they have already signaled as they weigh numerous unknowns. The latest curveball came late last week as Israel's airstrikes across Iran stoked fears that a protracted war could lead to higher oil prices and inflation this summer. 'This meeting will be all about the dot plot,' former Kansas City Fed president Esther George said. Due to how fluid things are at the moment, she predicts that 'they will be reluctant to signal changes from where they were earlier.' Wilmington Trust chief economist Luke Tilley said he isn't expecting many changes, either. 'I don't think that the dots will change very much, and I don't think the narrative will change very much either. Right now, it's two cuts, and I imagine it will stay pretty much the same.' Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments The Fed and its chair, Jerome Powell, are under an extreme amount of political pressure to speed up the timetable for any cuts, as President Trump continues to hammer Powell publicly for not easing policy sooner. The president last Thursday said he "may have to force something" as part of his ongoing push for the central bank to lower rates by a full percentage point, but he noted that he would not fire Powell before his term is up in 2026 — a move that would almost certainly be challenged legally. He also referred to Powell as a 'numbskull,' adding to a string of insults coined by Trump in recent months. Trump has been citing lower inflation as a reason for the central bank to cut. But Powell and many of his fellow policymakers have made it clear in recent weeks they are still more worried about the risks of higher prices from Trump's tariffs than any rise in unemployment as they weigh both sides of their dual mandate. EY-Parthenon chief economist Gregory Daco expects Powell on Wednesday to stress the risk of longer-lasting inflation because of tariffs and acknowledge that difficult trade-offs may emerge if inflation stays elevated while growth and employment soften. He said Powell will likely emphasize that with inflation still above the Fed's 2% target and the job market consistent with full employment, the bar for cutting rates remains high. 'Chair Powell will likely strike a tone of cautious patience, reiterating that policy remains data dependent and that the Fed is prepared to recalibrate policy over time,' Daco said. The latest measures of inflation have, in fact, shown milder increases in prices even as tariffs were turned on full blast — a trend highlighted last week by Trump and Treasury Secretary Scott Bessent, who told lawmakers last Thursday that 'there is no tariff inflation.' Read more: What Trump's tariffs mean for the economy and your wallet Bessent's pronouncement came one day after a report showing the "core" measure of the Consumer Price Index that excludes volatile food and energy costs rose 2.8% over the past year in May, holding steady from April. The Fed's preferred inflation gauge, the "core" Personal Consumption Expenditures (PCE) index, rose 2.5% in April, down from 2.7% in March. The Fed's goal is to get this number down to 2%. 'There hasn't been a whole lot of inflation pressure other than the shelter index, which continues to drift down,' Tilley said. Fed watchers note that the job market is cooling but not cracking as the unemployment rate holds at 4.2% and wages are still rising at a nearly 4% clip. Thus, the job market is not giving Powell and the Fed many reasons to consider a cut in the near term. Investors are currently betting they won't see that first cut until September at the earliest. 'The real question is what is going to happen in the second half of the year, and will those trends continue?' former Cleveland Fed president Loretta Mester said. 'That's where the high level of uncertainty still is with us, and that I think is why the Fed is on hold until some of that we get a little more clarity about not only the magnitude of the tariffs and the breadth of the tariffs, but what effect they'll have on inflation,' she added. Mester said holding the fed funds rate steady doesn't seem very costly to gain more clarity in the summer on tariffs. But Tilley said he believes the Fed should leave the door open for a rate cut in July, which is when expects the first rate cut. He expects that by that time, the economy will show signs of weakening and the job market will have cooled further. 'They need to leave that door open because a year ago, when they went into the June meeting, they completely took July off the table,' Tilley said. 'In September, they ended up cutting by 50 basis points because they realized they had fallen behind.' JPMorgan chief economist Michael Feroli said he doesn't anticipate a rate cut until December, noting that Fed officials have been 'univocal in their desire to wait and see how higher tariffs affect the economy before acting.' Feroli is looking for an additional three consecutive cuts early next year before reaching a resting spot at 3.25%-3.50%. Rates are currently in the range of 4.25%-4.5%. George said her sense is that the bias is still to cut rates, as officials signaled in March. She noted that Fed governor Christopher Waller has made it clear he sees that possibility and others holding out hope that cuts are still possible. 'I don't think they have the leeway to be acting on or penciling in changes,' George said. 'That would shake the markets around. I don't think they want to cause people to think things are going to be tighter for longer when they're not ready to say that.' Click here for in-depth analysis of the latest stock market news and events moving stock prices Sign in to access your portfolio
