US DATA: Core Goods Pickup Unusually Driven By Ex-Vehicles In Tariff Sign
The 0.1pp pickup in core CPI M/M to 0.23% from 0.13% was basically equally split between core goods and services: note that vehicle price inflation didn't really make much of a sequential contribution difference (subtracting around 0.02pp to core CPI each, with used -0.7% after -0.5% and new -0.3% for a 2nd month). The standout was "other goods", ie ex-vehicle goods, raising their contribution to 0.09pp from 0.02pp prior. See table below though also note slight differences in aggregates due to rounding.
- That's the biggest such contribution since June 2022 in what is arguably the clearest sign yet that tariffs are beginning to seep through into CPI.
- For example, apparel accelerated to 0.43% M/M (-0.42% prior), contributing 0.01pp to CPI, most in 4 months. But there were multiple other core goods areas that are seen sensitive to inflation that saw acceleration, including recreation commodities (0.77% from 0.41%) and household furnishings and supplies (0.98% from 0.34%).
- Core goods ex-used vehicles rose the fastest since Feb 2022 (0.32% M/M after 0.03).
- On the services side, note the 0.05pp drag on core inflation from lodging. Medical services made up for that, rebounding to contribute 0.05pp after 0.01pp; "other services" were then 3rd biggest contributor in our aggregates outside of housing (0.12pp) and the above-mentioned "other goods") (0.09pp).
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US FISCAL: Available Extraordinary Measures Pick Up Ahead Of Tax Date
Treasury had $144B in "extraordinary measures" available to keep the government financed as of June 11 per a release Friday. That is up from $84B a week earlier and the highest since April 28.
- However, TGA cash continues to fall, to $309B latest (lowest since early April) Combined with a pullback in Treasury cash ($376B), keeping the total resources available to avert an "x-date" in the summer at around $450B .
- There will be another uptick in Treasury cash in the coming days, and it's likely Treasury allowed some of the extraordinary measures to be rebuilt (ie not exercised) in anticipation of more cash coming in.
- This is likely to be the last major uplift before the summer at which point x-date speculation will pick up if Congress hasn't passed a debt limit increase by then.
FED: Two Cuts Priced This Year Headed Into FOMC Week
As we head into the June Fed meeting week, market pricing is reflective of the FOMC’s messaging (that we describe in our preview):
- The next cut is only fully priced by the October FOMC meeting, with September seeing a roughly 80% implied probability of bringing the next 25bp reduction.
- Exactly 50bp of cuts are priced through end-2025, implying two Q4 cuts.
- That’s a shift from just after the May meeting, after which the next cut was fully priced by September, and there were closer to three cuts priced for the rest of the year.
- Overall cuts are seen backloaded this year (after 15bp in September, 29bp of cuts priced in Q4 - Oct/Dec combined), but falls off in Q1 (just 21bp cuts priced, 9bp of cuts priced for January and 12bp for March)
FED: Summary Of Economic Projections: Higher 2025 Inflation, Weaker Growth
The MNI Markets Team’s expectations for the updated Economic Projections are below.
- As of the May meeting, the Federal Reserve staff – whose outlook tends to be broadly shared by the median Committee member – revised their forecasts for growth weaker in 2025 and 2026, “as announced trade policies implied a larger drag on real activity relative to the policies that the staff had assumed in their previous forecast. Trade policies were also expected to lead to slower productivity growth and therefore to reduce potential GDP growth over the next few years. With the drag on demand expected to start earlier and to be larger than the supply response, the output gap was projected to widen significantly over the forecast period. The labor market was expected to weaken substantially, with the unemployment rate forecast moving above the staff's estimate of its natural rate by the end of this year and remaining above the natural rate through 2027."
- On inflation, "The staff's inflation projection was higher than the one prepared for the March meeting. Tariffs were expected to boost inflation markedly this year and to provide a smaller boost in 2026; after that, inflation was projected to decline to 2 percent by 2027."
- Our expectations for these changes fall somewhere in between those projections and the March SEP – a slightly higher unemployment rate, substantially higher inflation in 2025 but to a lesser extent in 2026, and weaker GDP growth this year. Longer-run variables should be unchanged.
MNI Markets Team Expectations For June 2025 Summary Of Economic Projections Medians
