MNI US Macro Weekly: Powell Patience As Geopol Risks Surge

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Executive Summary

• This is an unusual two-week edition of the MNI US Macro weekly, capturing CPI/PPI and retail sales reports before the FOMC decision of Wed 18 June.
• The CPI report saw weakness in services and large goods items outweigh some emerging tariff signs whilst PPI details had a neutral readthrough. Core PCE inflation is tracking at 0.15% M/M in May after a 0.12% in April.
• Since the releases, import prices suggest most foreign exporters didn’t take a tariff “hit” in April or May by lowering their selling prices, implying domestic consumers or importers continue to bear the larger costs.
• Surveyed inflation expectations have cooled, with some question marks around the U.Mich survey.
• May retail sales, on day one of the two-day FOMC meeting, saw the control group flatter a mixed report.
• Combined with weak residential construction and the Q2 GDPNow of 3.4% is its lowest since May 27.
• Weekly jobless claims confirmed recent deterioration in the labor market, including a sizeable step higher in initial claims compared to recent payrolls reference periods.
• The June FOMC communications had a hawkish tilt overall, despite the immediate dovish reaction to the updated Dot Plot retaining the median expectation of 50bp in rate cuts by end-2025. Chair Powell was far from emphatic about the prospect of rate cuts, all but taking a cut at the July meeting off the table. That said, the FOMC still remains committed to cutting, if only in half-hearted and patient fashion.
• A characteristically dovish Governor Waller was quick to push back on Powell’s patient rhetoric, saying on Friday that the Fed could cut as early as July whilst not wanting to wait until the job market “tanks”.
• Geopolitical developments and prospects of the US striking Iran have set the tone throughout although the dovish Waller has helped see cut expectations climb to 51.5bp of cuts for 2025 at typing.
• The week ahead sees Powell’s Congressional testimonies and we watch broader Fedspeak -- the FOMC is particularly divided with 7 members looking for zero cuts this year through to 2 looking for three.
• There are various data releases of note, with the pick being the May PCE report on Friday. 

A More Hawkish Distribution Behind The Dot Plot