Ian Reynolds
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Overnight
Economic Indicators Released Overnight
USD fell to new lows as US new home sales plummet and treasuries rallied after a passable 5 year note auction.
But most of the focus was on Powell's second day of testimony to congress.
Key Takeaways
1. Tariff-driven inflation poses serious risks
Powell warned that while new tariffs might cause a one-off rise in prices, they could also embed persistent inflation. The Fed is therefore cautious about cutting rates prematurely until more data clarify the trajectory of inflation, particularly amid pending trade deadlines.
2. Watchful “wait‑and‑see” stance
Although financial markets expect two rate cuts this year, Powell emphasized the need for patience. He pointed to upcoming inflation data in June and July as critical signals—if inflation remains contained, cuts could still happen later.
3. Importance of the Fed’s toolkit
Powell defended the Fed’s authority to pay interest on bank reserves, calling it essential for managing interest rates. He cautioned that undoing this system would be “long and bumpy” with no clear cost savings.
4. Concerns over data quality
He flagged the growing unreliability of economic metrics—especially CPI and jobs data—due to budget cuts and survey suspensions in Bureau of Labor Statistics reporting. This degradation threatens the Fed’s ability to make well-informed decisions.
5. Pushback from lawmakers and the administration
Some Republicans accused Powell of bias or being overly cautious—echoing President Trump’s criticism (he called Powell “stupid” and “average mentally”)—given pressure for immediate rate cuts.
Summary Outlook
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Policy Outlook: No imminent rate cuts; Fed waiting for clear inflation data this summer.
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Primary concern: Tariff‑related inflation and ensuring it doesn’t become entrenched.
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Risks highlighted: Economic data accuracy and political influence on monetary policy.
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Tools safeguarded: Retaining interest on reserves as a core regulatory mechanism.
Fed's Powell cautions against ending Fed power to pay interest on reserves [Reuters]
NASDAQ powered up towards the all time high but the other equity markets weren't so convinced.
Breaking
Emerging market local currency debt could end decade-long drought as dollar wanes [Reuters]
Bitcoin
Nearly at the big resistance band. Will need something special to break through.
Commodities
Oil consolidating below resistance as we wait to see if the ceasefire will really hold, and more importantly what happens next.
Bonds
US 10 year bond yield continues lower towards support around 4.10%.
US 10 Year Government Bond Yield Daily
Foreign Exchange
Seemingly nothing and no-one can save the USD as it continues lower towards the long term support band.
Equities
The NASDAQ was the star yesterday but still not convincing.
Interesting
Economic Indicators Today
