Market Knowledge

The final week of October is ending with some spooky economic news.
As was widely expected, the Federal Reserve cut the Fed Funds Rate by 0.25% on Wednesday afternoon at the conclusion of their seventh meeting of the year.  However, in contrast to market expectations Fed Chair Powell was extremely non-committed to another 25 basis point cut at the Fed’s next meeting in December.  Markets had been pricing in expectations for three consecutive rate cuts to finish 2025.  Markets reacted sharply to this shift in expectations, with yields on the benchmark 10-year treasury finishing the week now 20 basis points above the low point mid-month.  Mortgage rates have followed suit and ticked back up slightly.  Powell noted that inflation remains above target with risks tilted to the upside, the labor market has been sluggish with risks to employment to the downside, and yet GDP is growing at a modest pace through the first six months of the year shows the economy.  “Modest” in Fed lingo means steady and sustainable – which is a good thing.  This leaves a challenging position for Fed Chair Powell and the FOMC crew – does the economy need more accommodative monetary policy or are we already at a good point?  To add additional challenges, only 10 out of the 12 voters were in favor of the 25 bps rate cut decision, with Governor Miran, newly installed by President Trump, being in favor of a larger 50 basis point cut and Kansas City Fed President Schmid in favor of leaving rates unchanged.  Add on to the challenge of diverging opinions on the path for rates, Jay Powell’s term as Chairman ends next May, which quickly approaching, and its clear that the President will be replacing Powell.  Chair Powell must do his best to lead the Fed while getting pressure from his boss about his decisions while his peers may not agree with him.  Powell returned to his metaphor of driving through the fog – noting that when you can’t really see where you’re going and your surroundings are unclear you need to proceed at a slower pace.  This may have also been a bit of a dig at the government shutdown, which is causing delays in economic reporting and may even be distorting the data that is reported.  The BLS’ CPI report for September was delayed by a week and a half and reported that the pace of annual price increases continues to hover right around 3%.  Today we should have received the PCE inflation report for September, but with the government shutdown the BEA department will not be releasing any data.

Mortgage rates remain close to their lows over the last 12 months, despite a tick up to end the week following the Fed meeting on Wednesday afternoon.  Despite lower interest rates, home ownership affordability remains challenging as high prices remain high.  The most recent Case-Shiller Home Price Index report covering data through August showed home prices across the country rose by 1.5% over the prior 12 months.  The Massachusetts Association of Realtors reported that September single family homes sold for a median sales price of $654,000 which is up 4.7% from a year earlier.  While new listings during September were 7.5% higher than a year ago, however there remain 4.2% fewer homes for sale on the market than a year ago.
 

^{The content of this publication is provided for informational purposes only and is not intended to recommend any financial decision or course of action.  Any financial and investment decision should be made in consultation with your financial advisors and representatives and should be evaluated at your own risk.}

Temperatures have plummeted in the Boston area. Seems we have gone right from the 80°s to the 50°s in one day, skipping over the comfortable fall 60° and 70° temps. I had to turn the heat on in my house this morning as overnight temps chilled to 33° and highs barely crossing 60° over the 10-day forecast. Maybe I should start trading natural gas futures over the warm summer months?!

Regional Federal Reserve Bank officials are meeting this week ahead of the late October meeting of the FOMC. Heading into day 10 of the government shutdown there remains no expectations for it to end quickly. The BLS is recalling workers currently on furlough to prepare the September CPI report. This is certainly a welcome sign for Fed officials – and those receiving social security checks which adjust based on inflation measures. The FOMC members will be heading into their next meeting with fewer government economic data reports, but markets are firmly anticipating another 25 basis point rate cut from Jay Powell and crew – as evidenced by the current 94% priced expectation in markets as measured by the CME group. In an interview this week Fed Governor Christopher Waller noted that while we don’t have the typical September BLS jobs report, there are other private reports that the Fed looks to and all reports confirm that the labor market is struggling. “Job growth has likely been negative for the previous few months” said Waller, and few large companies are indicating any plans for significant hiring. The Fed remains in a challenging position to achieve its dual mandate – highlighted by the divided opinions among FOMC members. Inflation remains above target, while the labor market is indicating less than maximum employment. Measuring inflation and the causes of it are challenging – is inflation higher due to one time price increases from tariffs or is it more driven by other supply and demand dynamics. Fed Governor Waller views the primary diver of higher inflation as tariff related and is ok to look past as a one-time increase to prices. Adding to the challenge is that GDP growth is strong, with a 3.8% annualized rate of growth in Q2 and close to 2.5% over the prior two quarters combined, after factoring in the influx of Q1 imports which drove Q1 GDP negative. A solid and growing GDP contradicts a sluggish and slowing labor market. Gov Waller is in agreement with an additional 50 basis points of cuts before year end, noting “I’m still in the belief that we need to cut rates, but we need to be cautious about it,” which is what markets are expecting and is currently being priced into markets. One factor that could be driving the divergence between GDP growth and labor market growth could be how AI is being adopted by companies – are workers able to be more efficient with the use of AI and thus productivity is growing without needing more workers. This theory also seems to fit in with the larger explanations in the labor market that companies are not necessarily laying off workers, rather they are not hiring and replacing workers as the market has typically seen.

Mortgage rates have taken a welcome decline since recently peaking near 7% at the beginning of the summer. As the Freddie Mac average survey rate shows, hitting a recent low of 6.26% - this is an average rate survey and many borrowers have been able to secure rates that start in the 5%s. As rates have fallen, more new homes have come on the market, with Middlesex, MA county averaging 511 new listings per week over the past five weeks, compared to just 320 on average per week for the five weeks prior (excluding Labor Day weekend holiday outlier low).

^{The content of this publication is provided for informational purposes only and is not intended to recommend any financial decision or course of action.  Any financial and investment decision should be made in consultation with your financial advisors and representatives and should be evaluated at your own risk.}

The Fed’s preferred inflation measure hit markets today but made little waves.  August’s PCE inflation rose at a 2.7% pace, and Core PCE inflation rose by 2.9% over the past 12 months.  From the prior month both measures rose by 0.3%.  These readings were right in line with expectations leaving markets little changed.  The current focus on economic data pertaining to the Fed’s dual mandate of price stability and maximum employment is currently on the labor market, as new job creation appears to be in free fall over the past 60 days of data reports.  Much focus will be on next Friday’s labor market report for the month of September.  Fed Chair Powell has noted recently how the risks to the economy have shifted over the past few months to greater risk presented by the labor market and less risk from inflation.

Turning back to today’s inflation report – the Core PCE remained at 2.9% for the second straight month, in line with market expectations but continuing to remain well above the 2% target of the Federal Reserve.  Back in April Core PCE had declined to 2.5% and it appeared to be on track to move closer to target, but the past four months have shown more persistent levels of higher prices.  Also in the report, incomes continue to grow, with personal income increasing by 0.4% and disposable income also increasing by 0.4% from the prior month.

The Federal Reserve remains in a challenging spot, as Chair Jerome Powell has noted.  On one hand higher than long-run target inflation would indicate the Fed should maintain a restrictive stance in monetary policy to contain a hot economy, which is the usual driver of higher inflation.  On the other hand, the slowing labor market data indicates the Fed should ease policy to support the labor market and promote employers to retain, hire and invest.  The current cycle of higher inflation is rewriting the text book assumptions on cause and how to solve.  Tariffs, labor supply and global trade are more the cause this time than overly strong consumer spending.

This morning the final reading for September University of Michigan Consumer Sentiment Index showed a 55.1 level, a decrease of 5% from August and down 21% from a year earlier.  Survey respondents with larger stock investment portfolios had notably higher sentiment than those with smaller or no holdings.  This month both overall economy and personal finance expectations fell as respondents noted lower expectations for labor markets and business conditions along with worsening outlooks for personal income and finances.  Additionally, 44% expressed frustration over higher price levels eroding away at their personal financial situations.

 

^{The content of this publication is provided for informational purposes only and is not intended to recommend any financial decision or course of action.  Any financial and investment decision should be made in consultation with your financial advisors and representatives and should be evaluated at your own risk.}

It feels like a repeat of 12 months ago.  Mortgage rates were falling in early September and then middle of September the Fed cuts short term rates and suddenly mortgage rates rise.  What gives?!  The Federal Reserve’s Open Market Committee (FOMC) this week cut its Fed Funds rate by 25 basis points and forecasted a further 50 basis points of cuts by the end of the year.  Relief for homebuyers, right?  Well, not so fast.  It’s a common misunderstanding that if the Federal Reserve changes rates that its mortgage rates that they are adjusting.  In fact, the interest rate that Federal Reserve sets is the Fed Funds rate, which is an overnight rate – that’s right, a 1-day interest rate, that banks use to lend to each other overnight to meet reserve requirements.  While this rate does serve as a benchmark rate on which many other rates and consumer borrowing products are based on, it does not directly impact long term mortgage rates.  The Fed’s rate cut will still mean positives for many consumers, including lower credit card interest rates, car loan rates and Home Equity Lines of Credit (HELOC) and other borrowing products tied to the Prime Rate.  Unfortunately, for consumers holding cash in bank accounts such as savings accounts and money market accounts, the interest rate paid by banks will likely come down on those also.

What had mortgage rates falling heading into the Fed’s meeting and widely expected rate cut was the data on the labor market, showing plummeting job gains and major revisions to the previous 18 months of reported job gains.  Up until 45 days ago the data showed a persistently strong labor market that seemed to be refuting the challenges to the economy of persistently higher inflation.  A weakening, or much weaker than expected, labor market should require the Fed to pull back from its restrictive policy to spur employers to grow, invest and hire.  Where the rate market (that the Fed doesn’t set) goes then becomes dependent on expectations for future actions from the Fed and how what the Fed does and signals what it may do in the future matches up with expectations of markets who are setting rates in the open market.  In theory equity and bond market prices reflect all known information at that point in time.  Part of that known information is expectations for the future based on the information, and when information changes – including the dot plot and comments from the Fed Chair – then prices adjust to reflect that new information and expectations.

Homeowners are typically quick to jump on lower lending rates in the form of refinancing their mortgage.  In the first half of September so far refinance activity has spiked, already more than triple the previous monthly high for the year.  Additionally, lower mortgage rates will add more purchasing power to home buyers and may entice some sellers to enter the market bringing much needed housing supply to market.

^{The content of this publication is provided for informational purposes only and is not intended to recommend any financial decision or course of action.  Any financial and investment decision should be made in consultation with your financial advisors and representatives and should be evaluated at your own risk.}

After last month’s epic disappointment in the jobs report for July, the August report this morning again disappointed.  August added just 22,000 jobs with the unemployment rate rising to 4.3%.  Additionally, as usual, the prior two months were revised, with June’s previous gain being revised to job losses of 13,000, a downward revision of 27,000 jobs.  July was revised higher slightly by 6,000 jobs to a gain of 79,000.  The revision for June posts the first negative print since 2020.  Hourly average earnings across the country continues to rise, up $0.10 per hour in August to $36.53 – which was a 0.3% increase from the prior month and 3.7% over the past 12 months.  In August the healthcare sector was the bright spot, adding 31,000 jobs, while federal government jobs continued to shrink, losing another 15,000 jobs and now down 97,000 jobs since January.  Manufacturing jobs also declined, losing 12,000 jobs and down 78,000 over the past year.  Looking at the chart to the left, it appears the sluggish job growth timing aligns with new tariff and immigration policies as potentially there are fewer workers and employers are uncertain about future economic conditions and thus less likely to hire and retain workers.

The Fed will take this jobs report into account at its next meeting in two weeks.  Since the jobs report this morning, market expectations have shifted on what the Fed will do with rates.  Prior to the jobs report near full probability was priced into the market for a 25 basis point cut.  Currently markets are pricing 88% probability of a 25 basis point cut and now a 12% probability of a larger 50 basis point cut.  If the Fed went with the larger 50 basis point cut that would send shock signals through the market leading to concerns that either the Fed is seeing additional signs of weakness that markets should wake up to, or that Fed independence is starting to falter and the President is becoming more in control of setting rates.  The FOMC will still get another CPI report prior to their meeting but given current data we anticipate a 25 basis point cut.  Treasury yields have been moving lower this week, currently down to 4.07% and the lowest level since a brief low in April at the initial tariff announcements.  75 basis points of total cuts by year end is now priced into markets.

The economic outlook remains uncertain with Trump’s tariff policies and funding freezes to certain large universities again this week called into question by the courts.  Fall appears to be here in the northeast, schools are back in session, summer vacations have been completed and rates are starting to move in the right direction for a strong fall purchase market.  We typically see a strong pickup in new listings in the Boston market after Labor Day.  Last year September new listings in Middlesex county averaged 500 per week, compared to just 280 during July and August.  Since June 1^st mortgage rates have been on a slow yet steady decline, moving from a high of 6.89% to currently 6.50% as measured by the Freddie Mac PMM weekly survey rate.  This rate movement on a 30 year mortgage equates to around $25,000 in additional purchasing power for the same monthly payment for home buyers.

^{The content of this publication is provided for informational purposes only and is not intended to recommend any financial decision or course of action.  Any financial and investment decision should be made in consultation with your financial advisors and representatives and should be evaluated at your own risk.}

Hard to believe today is the final business day of August, the summer has flown by and now kids are back in school. On the positive side we typically see an increase in new home listings in September once folks are back in their normal routines in terms of summer vacations over and kids back in school.

This morning’s PCE report showed that inflation remains little changed from the prior month, with headline PCE flat at 2.6% from the prior year and Core PCE at 2.9%, just 0.1% higher than the prior month. PCE inflation bottomed out in the recent cycle in April at 2.1% and has increased over the past few months as tariffs have added additional costs to consumers and businesses. Inflation data has not shown the massive increases which were of concern when tariffs were initially announced. Also in today’s report, personal incomes rose by 0.3% from the prior month and the savings rate was 4.4% of disposable personal income.

Other key economic indicators such as weekly initial jobless claims are also continuing to present a fairly stable economy – with the current week’s 229,000 initial claims quite similar to the year’s weekly average of 226,400 and current 4-week average of 228,250. However, despite these metrics it feels quite different in everyday life. While prices at the gas pump are lower, it feels most other prices for goods and services such as grocery items and home renovation projects continue to rise. While I’m happy to be paying just $8 for a dozen eggs (compared to $10 earlier this year), I can recall not so long ago when it was more like $3 or $4. However, breaking down to simplistic supply and demand theory (I am a believer that every economic concept can be explained in terms of supply and demand) I understand that all workers want to be paid more and more each year – and the average hourly earnings show this. July’s jobs reported the average hourly pay rate of $36.44 is 24% higher than 5 years ago of $29.38 in July 2020. For employers to be able to pay workers 24% higher wages they need to increase the price at which they sell their products and services. Add to this what covid did to alter the global supply chain and supply of workers, and the current disruptions from changes with tariffs and immigration and while painful at the checkout line it makes economic sense that prices need to be significantly higher.

Shifting focus to the Fed and what we may see for the remainder of the year – it now appears certain that the Fed will cut 25 basis points to Fed funds at the September 17th meeting. Following the disastrous low July jobs number and prior months’ revisions market expectations shifted immediately to favoring a cut, and Fed chair Jay Powell’s speeches in Jackson Hole earlier this month also signaled that the Fed is ready to cut rates, noting that “the balance of risks appears to be shifting.” The greatest risk in the economy currently is a swift increase in layoffs and a rising unemployment rate. By reducing its benchmark federal funds rate, the Fed can encourage businesses to invest and retain or even hire more workers. President Trump is further adding to rate cut expectations with the removal of Fed Governor Cook, who has been a voter to hold rates this year. Assumptions are that the replacement governor would be more in tune with the President’s view that rates should be much lower than current levels.

While rate cuts would be money savings for consumers in terms of borrower costs on things like Home Equity Lines of Credit and credit cards, I would not expect long term fixed rate mortgage rates to fall much as they have already adjusted for market expectations – which currently are forecasting 50-75 basis points of Fed Funds cuts before the end of this year. What we may see is a further steepening of the yield curve, to a more normal shape, which could drive some additional spread between rates on ARM loans (which have an initial fixed period typically of 5 or 7 years and then float to market) and Fixed rate loans – providing some borrowers with the greater affordability, but at the cost of longer run rate stability.

^{The content of this publication is provided for informational purposes only and is not intended to recommend any financial decision or course of action.  Any financial and investment decision should be made in consultation with your financial advisors and representatives and should be evaluated at your own risk.}

The President met with Fed Chair Jerome Powell to review the renovations to the Federal Reserve building. Speaking to reporters, President Trump noted that he’s pleased with everything aside from wishing that Powell would lower interest rates. I can imagine the President pointing out a cost and remarking “this line here could have been a lot less expensive if interest rates were lower!” In his signature fashion Powell wore his politically neutral purple tie – a balance between red and blue!

The Fed meets next week with markets fully expecting no change to rates – currently pricing such expectation at 97%. 45 days out the next Fed meeting in mid September sees nearly two thirds expectation for a 25 basis point rate cut. Even with a cut in September mortgage rates are unlikely to move much. Recall that longer term mortgage rates already price in all known market information and expectations. Mortgage rates have been extremely consistent since the start of Q2, with the Freddie Mac 30 year fixed survey rate ranging between 6.62% and 6.89% over the last 17 weeks since the start of April.

Next week will be packed with economic data, with the June PCE inflation data printing on Thursday the 31st and the July jobs report printing on Friday August 1st. Expectations for PCE inflation are for a tick up slightly, with inflation measures a tenth of a percent higher than the prior months’ rate; and the annual pace to increase by 0.1% to 0.3%. The Jobs report is expected to show gains of around 100,000 jobs, slower than June’s growth; and the unemployment rate likely unchanged.

Tariffs are starting to have an impact on prices and corporate earnings, with General Motors reporting that tariffs have reduced earnings by $1.1 billion so far. The Wall Street Journal reported this morning that the US has collected $55 billion in tariff revenue so far, and it appears that the burden is being split among exporters, importers, corporations and consumers – with corporations so far bearing most of the cost. The US has recently come to a tariff agreement with Japan at 15% and the EU also at 15% seems close to finalized. The August 1st deadline for trade agreements may yet again be pushed later as negotiations continue with many nations. Financial markets continue to look past tariff news with the S&P set to close the week at yet another record high.

^{The content of this publication is provided for informational purposes only and is not intended to recommend any financial decision or course of action.  Any financial and investment decision should be made in consultation with your financial advisors and representatives and should be evaluated at your own risk.}

This week was headlined with two inflafon readings – the CPI and PPI. First on Tuesday, June CPI came in showing a 2.7% annual pace of price gains while Core CPI grew at a 2.9% pace. These were largely in line with market expectations, however a tick up from the prior month. From the prior month CPI increased by 0.3% while Core CPI increased by 0.2%. Shelter costs, the CPI lingo for housing, rose by 0.2% from the prior month, making it the largest factor driving the overall reading. Food at home, think grocery store prices, rose by 0.2%; while food away from home, think restaurant prices, rose by 0.4%. The PPI, Producer Price Index, was unchanged from the prior month, lower than the expected increase of 0.2% from the prior month. This is significant as economists continue to wait for the signs of inflationary pressure from tariffs to be seen in the backward looking inflation data.

The Federal Reserve will meet again before the end of the month to set interest rates and discuss any potential policy changes along with publishing its interpretation of current economic conditions and the Fed Chair’s press conference. Earlier in the year markets had been expecfng rate cuts by now, but given stable and slightly declining inflation data, consistent with the above readings on CPI and PPI, along with stable labor market data, the Fed has remained in a position of awaiting either cracks in economic data – which would largely be from tariffs and other pressures from the administration – or inflation firmly hitting its 2% target before making any rate changes. As neither has happened so far this year, the Fed has been content to leave interest rates unchanged so far. Markets are fully expecting rates unchanged following the conclusion of the July 30th Fed meeting, and slightly favoring a rate cut at the September 17th meeting – with markets currently pricing a 60% expectation for lowering rates.

Released this morning residential housing stats increased 4.6% in June compared to May, however are down 0.5% compared to June of last year. Adequate supply of housing is a key driver to housing affordability After a negative 0.5% GDP print for Q3 at the third, and final revision, in June, Q2 GDP is now being estimated by the Atlanta Fed at a 2.4% gain as seen in the blue bar to the left.

^{The content of this publication is provided for informational purposes only and is not intended to recommend any financial decision or course of action.  Any financial and investment decision should be made in consultation with your financial advisors and representatives and should be evaluated at your own risk.}

This was a quiet week in terms of economic news. One date which seemed important and then was downplayed was the possible July 9th expiration of the 90-day pause on tariffs announced in early April. This date came and went and potentially got pushed out to August 1 or may have even been more of a theoretical timeframe as some additional country and product specific tariffs were announced this week, however nothing too major. Markets have come to expect the unexpected and have largely looked through tariff impacts. It was announced this week that copper imports would be subject to a 50% import fee, which sent copper markets into turmoil and prices to record highs. Also announced starting Monday will be a 21% tariff on tomato imports from Mexico. In equity market news Nvidia surpassed $4 trillion market capitalizatin, becoming the first company to hit on this lofty valuation.

Mortgage rates remain relatively stable, despite a flurry of headlines over the past few months. Inflation and labor market data have remained strong enough that the Federal Reserve can continue its wait and see approach. This has resulted in unchanged Fed Funds rate so far in 2025, and expectations for unchanged rates following the Fed’s next meeting at the end of July. Markets are currently pricing in a 25 basis point cut in September – however President Trump has expressed his opinion that rates should be some 300 basis points lower than current levels. The Fed has maintained its independence from any political pressures; however Fed Chair Jerome Powell’s term expires in May 2026, and it feels more likely than not that the next Fed Chairperson will be more open to the President’s suggestions in regards to interest rates. Federal Reserve voting members were unanimous at their June meeting in holding rates unchanged for the fourth straight meeting, yet divergence on the path forward appears to be growing, as seen in the minutes from the last meeting.

Some members see multiple rate cuts this year, as markets are pricing in, while others see no need to cut rates all next year given the current economic data. Fed funds markets are currently pricing in a 71% expectation of at least 50 basis points in total cuts by the end of the year. Recall that this is a short term rate that the Fed controls and longer term rates, such as 30 year mortgage rates, are the combination of short term rates and expectations for future rates and economic data, and any Fed rate changes are already priced into mortgage rates.

Next week brings additional inflation news, with CPI data coming Tuesday and PPI data on Wednesday. Markets will be closely watching these releases to see if any impacts from tariffs and tariff uncertainty is impacting inflation data. Stay tuned!

^{The content of this publication is provided for informational purposes only and is not intended to recommend any financial decision or course of action.  Any financial and investment decision should be made in consultation with your financial advisors and representatives and should be evaluated at your own risk.}

Happy Birthday America!!! This week marks the 249th anniversary of the experiment of democracy and capitalism. What Adam Smith hypothesized and published regarding the invisible hand of the market driving economic activity and prosperity still holds true today. Despite frustrations and disagreements, America remains the land of opportunity and the world’s biggest economy. In the first half of this year, we have seen President Trump come back to the white house, DOGE and the search for spending cuts and efficiency, liberation day tariff worries, and now we’re close to the passing of the biggest piece of legislation in Trump v2 – the spending and tax cut bill. For sure there have been some ups and downs, but financial markets continue to push forward – inflation continues to trend towards more stable and sustainable levels, labor market data continues to show signs of strength, treasury yields have fallen some since the start of the year and equity markets remain at or near all time highs.

With the July 4th holiday tomorrow we received the June jobs report a day early this month. Jobs data for June surprised on the upside showing Job Gains of 147,000 which was higher than expectations for 106,000 and extremely consistent with the prior two months, which were cumulatively revised higher by 16,000. The Unemployment Rate fell to 4.1%, a decline of 0.1% and 0.2% lower than expectations. The job gains are particularly interesting this month as the largest segment of gains is from government jobs, which great by 73,000 jobs. These were primarily in state and local education jobs which represents 63,000 of the above gains. Some of this may be more noise than actual sustainable job gains due to the timing of the school year and teachers’ contracts and may be due more to some of the seasonal adjustments within the computation of the reported numbers than actual job creation. Healthcare added 39,000 jobs which is on pace with its 12 month average. Earnings grew slightly, gaining $0.08 in average hourly earnings, which is up 0.2% from the prior month and 3.7% from the prior year. Focusing on the first six months of 2025 as the smaller chart to right shows, the labor market has been quite consistent. While there may be some distortions in the job gains number this month there is nothing in this report which would pressure the Fed to cut rates quicker and we’re likely to continue trending with mortgage rates in the upper 6s pending any surprise data in the coming weeks.

In other news this week, the Senate approved the president’s tax and spending bill and it is now back to the House for re-approval due to the Senate’s revisions. House speaker Mike Johnson intends to have a vote quickly and have the bill to the president for signing by July 4th. Next week the 90-day pause on tariffs comes up on July 9th, a date that has snuck up on us and at this point does not seem to be anything that markets are overly concerned with. A possible trade deal with Vietnam was mentioned on social media yesterday and could be indicative of additional deals or frameworks to be announced in the coming days by the administration. Cheers and Happy 4th to everyone!

^{The content of this publication is provided for informational purposes only and is not intended to recommend any financial decision or course of action.  Any financial and investment decision should be made in consultation with your financial advisors and representatives and should be evaluated at your own risk.}

The Fed’s preferred inflation measure is in for the month of April.  Over the past 12 months PCE inflation has increased at a 2.1% pace, while Core PCE has increased at a 2.5% pace.  Both measures continue to decline closer to the Fed’s 2% long run target.  Core PCE has declined from the 2.8% rate it ended last year at, and the 2.5% pace is the lowest since all the way back to March 2021 prior to the pandemic.  From the prior month both the headline and Core PCE increased by 0.1%.  Also included in the report disposable personal incomes rose by 0.8% from the prior month, showing continues wage growth allowing consumers to afford higher prices.  While this measure on price levels is still somewhat backward looking there does not appear to be any negative effects from tariffs.  At this point any tariffs appear to be covered through importers margins.  

Additionally related to tariff impacts, the US trade deficit shrunk in April to $87.6 billion, a decline from March’s $162.3 billion; marking the largest monthly decline on record.  Goods imports fell by 20% while exports rose by 3.4%.  In recent months leading up to the tariff announcement on April 2nd many companies had pulled forward imports in anticipation of expected tariffs which were a large part of President Trump’s campaign promises.

The University of Michigan today published its latest survey results on consumer sentiment, posting an increase from mid-May preliminary data.  May’s consumer sentiment levels are now flat to April’s reading at 52.2, ending four consecutive months of steep declines as seen in the chart to right.  This marks a 24% decline from May a year ago.  Sentiment rose during the latter half of May as excessively high tariff costs on Chinese imports were paused for 90 days while the two countries could negotiate more favorable partnership.  The survey showed that American’s remained concerned over the outlook for the economy in addition to personal finances stemming from stagnant wages.  Inflation expectations for the one year our increased by 0.1% to 6.6% while longer run expectations declined by 0.2% to 4.2%.

These three economic releases today point toward some positivity in the US economy which has seen its share of concern and volatility over the past few months.
 

^{The content of this publication is provided for informational purposes only and is not intended to recommend any financial decision or course of action.  Any financial and investment decision should be made in consultation with your financial advisors and representatives and should be evaluated at your own risk.}

As we head into Memorial Day weekend I would first and most importantly like to say thank you to the brave men and women who have served our country and given their lives to protect the freedom that we all know today and to their families who have supported them and made countless sacrifices as well. 

Just when it looked like we might ease into the holiday weekend with an early bond market closing we got a slew of economic news this week.  President Trump’s tax plan, dubbed the Big Beautiful Bill was approved narrowly by the House and is now on to the Senate for its review and potential approval.  House Speaker Mike Johnson says he will have the bill to the President for signature by July 4th.  Some notable parts of the bill include extending Trump’s first term tax cuts, an increase in the SALT deduction, removing income taxes on tips, overtime and social security, faster phaseouts of clean-energy initiatives and increased Medicaid eligibility reviews and work requirements.  The bill is expected to face some criticism and revisions in the Senate.

The Trump Administration amps up the pressure on Harvard University.  In the latest move, the administration is seeking to bar the university from enrolling foreign students.  Foreign students account for about 7,000 or 25% of Harvard’s enrollment currently.  This comes after the administration has pulled back billions of dollars in federal research funding to the university and threatened to revoke Harvard’s tax-exempt status.  The administration continues to cite concerns around antisemitism and DEI policies at the university which do not align with current administration policies.  Harvard is challenging the move, calling it unlawful and retaliatory.  This ban appears unlikely to survive in courts.
President Trump’s social media posts push for Apple to manufacture iPhones in the US – threatening a 25% tariff on iPhones made in foreign countries.  Citing stalled trade negotiations President Trump has proposed a 50% tariff on imports from the EU.
In a move toward efficiency and cost savings, the US Treasury announced it will stop making new pennies early next year.  The US Mint projects annual savings of $56 million in reduced costs from making the $0.01 coin, whose production cost is nearly four times its value.  As pennies continue to get lost in couch cushions, squished into vacation spot memorabilia or just plain lost businesses will consider rounding prices to the nearest $0.05 or transact more in non-cash payments.

Nationwide existing home sales fell in April, dropping by 0.5% from the prior month, and down 2% from April in the prior year.  Median prices continued to rise, marking the 22nd consecutive monthly increase, increasing 1.8% over the past 12 months to another all-time high of $414,000.  Rising mortgage rates and economic uncertainty were cited as the primary reasons for sluggish sales.  Inventory is rising particularly in the southeast region, along with falling prices; especially in Texas and Florida.  In Massachusetts single-family sales were down 1.9% in April from the prior year, while the median single-family sales price rose 4.7% to $665,000.  Active homes for sale increased from the prior year, with single family listings up 8% and condo listings up 16%.  New listings surged during the month with more than 5,900 new single family listings – a gain of 21% from the prior year; while new condo listings grew by 24% from the prior year.  Mortgage rates rose slightly, ending last week at 6.86% according to the Freddie Mac market survey.  This markets the highest level for rates since February.  Economic uncertainty, global trade wars and unknown tariff levels, and the recent reduction by Moody’s of the US government’s debt rating have all been contributing factors to the recent rise in yields/

Affordability remains a challenge, along with navigating a volatile rate environment for buyers, but with more homes coming on the market the outlook is looking brighter.
 

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