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Yahoo
5 days ago
- Business
- Yahoo
June CPI: Fed still needs 'reassurance' to cut rates
The latest Consumer Price Index (CPI) data came in hotter than expected, with inflation rising 2.6% in June, higher than the 2.4% seen in May but lower than the 2.7% economists expected. Investors weigh whether President Trump's tariff policy is fueling inflation in the US economy and what it means for the Federal Reserve. New Century Advisors chief economist Claudia Sahm and EY chief economist Gregory Daco join Morning Brief with Julie Hyman moments after the data release to discuss their expectations for the Fed in light of the fresh economic data. To watch more expert insights and analysis on the latest market action, check out more Morning Brief here. So, Claudia, um, let's bring it to the Fed. I mean, they've got a tough decision once again and ahead of them. What are the risks of them continuing to wait? Why the, the federal funds rate is what the Fed characterizes as moderately restrictive. Right, so it is putting downward pressure on the economy, on demand. I mean, that's the tool the Fed has to bring inflation down. And I think to add to what Greg said, it's really important to set this in context. The inflation in the United States has been above the Fed's target since 2021. It is still elevated. In particular, services inflation has remained quite elevated. The Fed is committed to getting inflation back to its 2% target. And I think a concern or risk with tariffs, which might not normally apply, but a risk here is that because we've been at an inflation elevated pace for so much time, that people are just going to build that into their thinking. Right? Are they going to think, hey, we're going to get 2% inflation going forward, or maybe they'll get stuck at this around the 3% level. And that's a big risk to the Fed, and that's the only reason that it is keeping interest rates in a restrictive place because it wants to get inflation back down to target. And I think, you know, we see, we have seen some progress this year in terms of inflation. I think it's really important to look at these core services. We have made some progress, but they need more reassurance that we're on the path to 2% and that these tariffs are not going to throw us off and really get stuck above target. And Claudia, you know, when we talk about tariffs, we're mostly talking about goods pricing. But of course, services pricing is the thing that until we got into this whole tariff discussion was the thing that was stubbornly not coming down. Are we seeing any progress on that front? Right. Well, in recent months, we did see some notable progress. And I think you saw travel inflation, recreation being really soft. Things where you think, oh, maybe this is like there's kind of a softening of demand, which again would be an environment where maybe tariffs wouldn't have that spark to inflation. And and we have seen, you know, a real kick to some of the rent, owner's equivalent rent slowing down, which we've been waiting for for a long time. I think we saw a little bit of giveback in today's data, you know, I mean things are noisy. We're not going to, you know, be on a glide path, but like the Fed, you know, tariffs are risk. Normally you would quote-unquote look through them, the Fed would ignore them because they're a one-time adjustment, but it's really important. If the Fed looks through, the rest of inflation, which is largely these core services, have to give them encouragement that we are, we have the momentum to 2%. I think they're building that case, but we're not, I don't think it's a slam dunk yet. And particularly because the economy, the labor market seems to be holding up relatively well. They got a little more time to do their fact-finding and bring the data in. And Greg, um, I want to ask you about the Federal Reserve as well and its reaction to all of this, especially in an environment where, you know, we, I don't know if we've had a post on Truth Social yet, but I'm sure it's only a matter of time before the president reiterates his call for rates to be cut. And this, of course, as we know, that the White House is looking for the next Fed chief. So amidst all that pressure, what do you think the Fed does? Well, I think generally speaking, I I agree with what Claudia was mentioning in terms of the disinflation on the services front. I'm a little bit more optimistic because I I have seen some very encouraging news in terms of uh what we're seeing on the shelter core disinflation front, also the auto insurance disinflation front. And if you look at some of the details in today's data, you'll see that hotel prices are falling, you'll see that airfares are also falling. So you're seeing signs of consumers being more cautious with their outlays, which is generally disinflationary. So we have these two currents. On the one side, disinflation that continues and has been occurring over the past 18 months. And on the other, the onset of the inflationary push from tariffs. As we know, the Fed is quite divided. There are seven policymakers that would favor no rate cuts over the course of 2025. There are eight that would favor two rate cuts, and a couple that would favor one rate cut. So there is a big split within FOMC policymakers. I would tend to believe that there is room to be easing, but as policymakers, those that favor rate cuts will want to see more evidence of an economic slowdown in the data before they proceed with such easing. That's not yet evident, and I think the Fed will wait until the later part of the fall before it proceeds with the onset of any rate cuts. 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Bloomberg
03-07-2025
- Business
- Bloomberg
Sahm: Jobs Report Makes it Difficult for Fed to Cut Rates
US job growth exceeded expectations in June for a fourth straight month and the unemployment rate fell, showcasing a labor market that is holding up despite a slowing economy. Payrolls increased 147,000 last month, driven by a jump in state and local government employment, according to a Bureau of Labor Statistics report out Thursday, a day early because of the Independence Day holiday. The unemployment rate fell to 4.1%. Private payrolls rose just 74,000 in June, the least since October and largely due to health care. Claudia Sahm, chief economist at New Century Advisors says this print combined with the inflation rate makes it unlikely the Fed will cut rates (Source: Bloomberg)
Business Insider
15-06-2025
- Business
- Business Insider
The Scared Stiff Economy
There's no such thing as the perfect time for a big decision. But when I reached out to Julia Coronado, the president of the economics consulting firm MacroPolicy Perspectives, to ask whether it's a good moment to take a significant financial risk, at least in the relative sense, her succinct email reply was telling: "Lol, short answer is no!" Given how complicated major transactions can be, there are plenty of caveats and counterexamples. On the whole, however, it is a particularly bad time for many major moves financially. Given everything that's going on right now, economists and personal finance gurus say that if you're treading water or feeling extra uneasy, you're not alone. " Uncertainty" is the word of the moment. America's tariff policies have shifted dozens of times since President Donald Trump took office. The stock market has been all over the place. The volatility emanating from the White House on immigration, government spending, and the federal workforce is palpable. There are rumblings of a recession and a return of high inflation. Consumer sentiment is in the basement. Across the economy, people feel like they're stuck in place. It's not a great time to change jobs, given the cooling labor market. The housing market isn't terrible — there's a growing amount of inventory out there — but if you're looking to buy now, you're probably lamenting having missed the dirt-cheap mortgage rates of a few years back. People thinking about retiring soon are doing some rethinking, given the current economic and financial market precarity. "It's not that when there's uncertainty or more uncertainty that people stop and don't act, don't make the big purchase, don't make the investment," says Claudia Sahm, the chief economist at New Century Advisors, an investment management firm. "It's often that the bar is higher." The issue at the moment is that while it may be appealing to adopt a wait-and-see approach, later is not synonymous with better. That's the calculation many Americans are facing now: Do I hold out on making a move now while things settle down, or do I take the risk that things will take a turn for the worse? "All we can do now is kind of read tea leaves on the future," says Chris Woods, a financial advisor who founded Silvis Financial. There's that old Wayne Gretzky quote about skating "to where the puck is going to be, not where it has been." The issue is that it's hard to guess where things are headed. When you're building up to a major financial leap, you typically sit on it until some level of certainty hits. That's especially true in scenarios where there are serious penalties for changing your mind. I mean, sure, you can offload that new car six months later, but you'd probably rather not. Jonathan Parker, a finance professor at MIT, tells me that a big spike in uncertainty will cause people to delay major spending such as upgrading to a new car, noting that "you might want that money for other purposes." When people make a big financial decision, such as buying a house, investing, or retiring, they want some level of buffer. They leave space for the possibility that some unexpected need will pop up — a medical emergency, an unexpected broken-down car or leaky roof, a lost job, a death in the family. Ideally, consumers don't want to just barely make their mortgage, wind up suddenly tapping the money they stowed away in their stock portfolio, or skimp on their day-to-day needs in retirement. When they take leaps, they want to leave a little side pot available to avoid an unforeseen circumstance. There's only so much a person can control — doing the best job possible at work doesn't insulate you from layoffs or guarantee your pay will increase with prices. Uncertainty makes that buffer harder to calculate and feel confident about having in the future. "In a time of great uncertainty, it's probably not the time you want to stretch with a purchase," Sahm says. This uncertainty may be headache-inducing for individuals trying to make up their minds, but what it might mean for the broader economy is tricky. Consumer spending is America's economic engine — personal expenditures account for about two-thirds of GDP. Ironically, people being worried is, in part, supporting the economy. When consumers are concerned about prices going up, they may pull forward big purchases to get them out of the way now before they get more expensive later. If you're nervous about your washing machine or car going kaput soon or are just looking to upgrade, it may feel prudent to replace them sooner rather than later in case prices go up. This year, consumer spending has jumped because of people trying to get ahead of tariffs. Crummy feelings about the future of the economy have actually been a good thing, spending-wise. "This is one thing that has helped consumer spending stay up while sentiment has really cratered," says Scott Baker, an associate finance professor at Northwestern University's Kellogg School of Management. At the same time, once people have made these anticipatory purchases or start to batten down the hatches, they could bring down the economy with them. If someone decides to put off renovating their kitchen, it means the contractor, the workers, and the store selling the materials miss out on money. "Just the fact that all of this is happening generates a wave of uncertainty," Parker says. "It's a significant drag on the economy, and it's not clear how big, but it certainly is a drag." Anyone who says they know what will happen next is lying. To be sure, there are some areas where sitting on your hands is usually the way to go, such as investing. When the going gets tough in the stock market, one of the worst things people can do is panic and cash out at the bottom. If someone had done that, say, in the wake of Trump's "Liberation Day," they'd probably regret it now. "Markets fluctuate all the time, they will go up and down," says Siavash Radpour, the associate director of the Retirement Equity Lab at The New School's Schwartz Center for Economic Policy Analysis. "Not doing anything is often a good policy for people who don't know what's going on." My colleagues at Business Insider recently did a series of stories attempting to answer whether it's a good time to make big life decisions. They looked at starting a business (the answer was yes), buying a home (if you must, but maybe rent), changing jobs (no), investing in stocks (go for it, within reason), buying a new car (hop to it), and retiring (hold off). The advice in the stories is all helpful and enlightening, but it can also go only so far. Every decision in life involves risks, and the truest answer to "Should I do X, Y, Z?" is, "It depends!" There's no denying we're in a time of heightened uncertainty. Anyone who says they know what will happen next is lying. And it really feels like things could break in any direction. While the safest advice is probably that you should snap up that new car before tariffs push up prices by thousands of dollars, Trump could declare the tariff thing over tomorrow, and all of a sudden you've overpaid for no reason. "The market this year has been driven less by fundamentals and just more by the different news we're getting from week to week on what's going on," Woods says. Maybe you do hold off on buying a house and come to regret it five years from now when prices are even higher. Or, you don't retire, and you miss out on time with your grandkids, or you're so risk-averse about jumping ship from your company that you miss out on your dream job. Those decisions are harder to make now with more factors in play. It's not just whether a recession is coming, but also what the AI revolution means for the structural future of the labor market. The question for retirees isn't just whether they've saved enough; it's also what might happen with public assistance programs they'd long planned around. "There is the risk of what's going to happen to Medicaid, what's going to happen to Social Security," Radpour says. "Health expenses are really scary in retirement." Starting a new business is always risky — statistically speaking, half of new businesses fail in five years. Loans for starting said business are more expensive and harder to come by. While it may be a decent time for a startup, no plan is foolproof. Many people who start a company during downturns and turmoil are doing so because they've lost their job or someone in their household has, not because they're jazzed about the future. "The jump is made for them, in some sense," Baker says. Still, if you see a market opportunity and want to make the jump, the idea that economy could get bad shouldn't preclude taking action. Thinking through all of the ambiguity and confusion isn't fun. Financial risks are always scary, whether big or small. Now it feels like the anxiety is extra heightened, given the context. For many people, it's going to feel like they're damned if they do, damned if they don't.
Yahoo
11-06-2025
- Business
- Yahoo
May CPI: Inflation data is 'likely to add to' market complacency
US stock futures (ES=F, NQ=F, YM=F) rise Wednesday morning after May's Consumer Price Index (CPI) showed inflation eased, with consumer prices rising less than economists expected in the month following President Trump's "Liberation Day" tariffs. New Century Advisors chief economist Claudia Sahm and RSM chief economist Joe Brusuelas join Morning Brief with Madison Mills and Brad Smith to take a closer look at the economic data and the market's reaction. Sahm also served as a Federal Reserve Board economist and is the creator of the central bank's Sahm Rule recession indicator. To watch more expert insights and analysis on the latest market action, check out more Morning Brief here. And do you think this softness that may have been indicated by the headline numbers is to be believed? I think it it can very well be an accurate picture of where we are as of last month. It's not necessarily really telling us where we're headed by the end of this year. And that's a big question is exactly how these tariff costs, which we know they're being collected, we see them in the treasury statements, where are they going to go? Showing up in CPI is not the only place that they can go, but it's it's really too soon to be saying we're, you know, clear path back to, you know, 2% inflation. So Claudia, with that in mind, it seems like the prevailing thought in the markets at least is that the worst of the unknown in terms of some of the tariff negotiations and and policy talks, that seems to be behind us. So what would that signal for the back half of this year, especially as we're waiting for some of those deals to net out and how long the tariff overhang could start to bleed through in a more powerful sense into some of these numbers? Right, well, again, even even with where the tariffs are right now, you know, the level they're at, which is much lower than some levels we had seen earlier this year, they're still six times what they were before we came into this year. We still have an adjustment. Adjustments take in the real world, adjustments take time. And businesses have made, you know, took efforts, built up some inventories, tried to, you know, slow things down. So again, I don't think we have a picture yet of what the costs really are from the current policy yet, even if that policy doesn't get any worse. And Joe, it makes me wonder whether we as investors is Wall Street sort of past the point of being too concerned about tariff policy. We're also having some tariff headlines crossing this morning, the president saying the deal with China is done. But we saw futures hitting session highs off the back of the inflation data. Is the market back to focusing on the inflation data primarily? No, this is likely to add to the complacency in a market that's pressed for perfection right now. My sense is is when I look at this, I see some good things. Ex-food energy shelter, inflation was flat and it's up 1.9%. This is a function of the really heavy lifting done by the Fed over the past several years. However, again, when your effective uh tariff rate is is over 15%, you're going to see some pass throughs. It's just a matter of time. When I look at the inflation report this morning, I see on a year-ago basis, services are up 3.7%. Housings up 4% and shelter's up 3.9%. We're back within ranges that I think are tolerable, but I'm not expecting uh much improvement in that in those uh indices. Again, what I'm really worried about is going forward is the impact on goods prices, more importantly, the impact on food prices. Notice that food prices were up and we know the Federal Reserve is now beginning to take a much closer look at food prices and near-term increasing the pass-through from these tariffs. And I think that's something that we all want to focus on given where the market what the market wants, which is rate cuts, and what the Fed's likely to do, which is not give them those rate cuts. At this point, we'll be lucky if we get one this year, perhaps in December, should we really see inflation become transitory, and it's just too early to make that call.
Yahoo
06-06-2025
- Business
- Yahoo
What to expect from Friday's jobs report
The government's May jobs report, slated for release at 8:30 a.m. ET Friday, could reveal the first signs of the impact on American workers of President Donald Trump's harsh on-again, off-again tariff policy. The consensus forecast is for the US economy to have added 130,000 jobs, slowing from a stronger-than-expected 177,000 gain in April, and for the unemployment rate to hold at 4.2% for the third consecutive month, according to FactSet estimates. 'The labor market is good, but it's not exceptional, and we're in the process of putting some real strain on the economy,' Claudia Sahm, New Century Advisors chief economist, told CNN in an interview. A case in point: Last June, after almost a full year on the job hunt, Jordan Williams landed a role at a high-growth, United Kingdom-based outdoor apparel brand that was looking to build out its US operations. Passenger Clothing was well positioned for expansion: The company landed orders with REI, Scheels and others; and Williams, a Portland, Oregon-based outdoor industry veteran, was excited for the ride. Until April. 'Upon 'Liberation Day,'' Williams said, nodding to the moniker Trump assigned to his blowout tariff announcement on April 2, 'I was liberated from employment.' Overnight, the US went from being Passenger's biggest potential growth driver to its biggest existential threat. For every $1 million of recycled fabrics, organic clothing and other products that landed in the US from countries such as India and China, Passenger was responsible for an additional $500,000 of duties, the company said in a mid-April statement announcing the pause of its US operations. Williams officially lost his job on April 11. Economists have warned that early layoffs like Williams' could be the first signs of labor market fallout from Trump's steep (and shifting) tariffs, which have ramped up uncertainty testing the nimbleness of businesses of all sizes. The Labor Department's weekly jobless claims report has shown higher numbers of first-time claims last month as well as people who have remained on unemployment for multiple weeks. Last week, first-time claims rose more than expected and totaled an estimated 247,000 filings, marking the highest weekly tally since October 2024, according to Department of Labor data released Thursday. Continuing claims, which are filed by people who have received unemployment insurance for at least a week or more, continue to bump up against a three-and-a-half-year high. 'This is a market where there are stops and starts, and there are pullbacks in hiring,' Nela Richardson, chief economist at payroll giant ADP, said Wednesday. 'With establishments, especially small establishments, when there's a lot of uncertainty — it doesn't mean that the demand isn't there but the timing may be off — firms would rather wait and see than hire aggressively.' The hiring rate, the number of hires as a percentage of total employment, ticked higher in April to 3.5%, but remains below pre-pandemic levels, according to Bureau of Labor Statistics data released earlier this week. And by ADP's count (which doesn't always correlate with the official jobs report) hiring dropped off precipitously in April and May, when the private sector gained 60,000 and 37,000 jobs, respectively. 'The weak numbers we're seeing now does not point to a labor market that's collapsing, but there is hiring hesitancy,' Richardson said Wednesday. 'It's like driving through fog for some of our firms here,' she added. Though the ripple effects from various Trump policies could take longer to show up in the data, the federal workforce reductions have already started appearing. The federal government posted job losses for three consecutive months, dropping 13,000 jobs in February, 4,000 in March and 9,000 in April, BLS data shows. More losses could be spread over many months to come: Not all federal workers were laid off immediately, and other actions are being challenged in court. Through May, announced job cuts are running significantly higher than in recent years; however, the lion's share of the cutbacks have come from the federal government. Department of Government Efficiency-related cost-cutting and its downstream effects have led to more than 294,000 announced job cuts, according to Challenger, Gray & Christmas data released Thursday. Another 131,257 announced cuts have been attributed to 'market/economic conditions,' while 2,097 have been directly tied to tariffs. 'Tariffs, funding cuts, consumer spending, and overall economic pessimism are putting intense pressure on companies' workforces,' Andrew Challenger, senior vice president of the outplacement and coaching firm, said in a statement. 'Companies are spending less, slowing hiring, and sending layoff notices.' DOGE's actions and economic uncertainty have driven job cut announcements significantly higher than last year: Through the first five months of the year, employers have announced 696,309 job cuts, an 80% increase from the comparable year-ago period, according to the Challenger report. It's also the third-highest total for a January-through-May period (behind the pandemic in 2020 and the Great Recession fallout in 2009) since Challenger started tracking employers' layoff intentions in 1993. In May, employers announced 93,816 job cuts, a decrease of 12% from April. The recent surge in layoff announcements could indicate that the labor market may see a further softening in the months to come (given the timing of the actions, severance and other effects); however, as it stands now, layoffs aren't mounting. Also, jobless claims (a proxy for layoffs) and the rate of layoffs and discharges remain below pre-pandemic levels, Labor Department data shows. Still, the impacts from tariffs might very well by a slow burn, Sahm said. 'We are still early days,' she said.
