US DATA: Texas Manufacturing Activity And Prices Steadier In May
May-27 15:15
May's Texas Manufacturing Outlook Survey showed an improvement from April and overall steady activity in the month, with the production index, "a key measure of state manufacturing conditions... indicating flat output this month after modest growth in March and April", per the Dallas Fed.
- Indeed, production fell 4.2 points to 0.9. But the general business activity index rose 20.5 points to -15.3, a three-month best, with 6-month ahead production up 16.3 points to 31.1, highest in 4 months. New orders picked up 11.3 points to -8.7, which apart from March's 29-month low would have still been the weakest since November 2024. Employment rose 7 points to 3.5.
- From an inflation perspective, prices paid pulled back 7.7 points to 40.7, with prices received up 0.2 to 15.1 - both still elevated. There was a bit more of a deceleration in 6-month ahead expectations, with prices paid down 7.8 points (39.8, 5-month low) and received ticking 1.4 points lower (28.2).
- The majority of anecdotal comments in the Dallas report mentioned "tariffs", mostly in a negative way though a couple respondents noted that confidence would improve if and when deals were struck. Indeed there was scarce mention of the May 12 US-China tariff climbdown (survey data were collected May 13–21) and even then the confidence seemed tentative (a firm in Computer and electronic product manufacturing: "I would say the uncertainty has decreased in the very short term (up to 90 days) based on the U.S.–China tariff rollback").
- The most tangible impact on the survey was in the 34.4 point drop in the Outlook Uncertainty index, to 12.7.
- We get the Richmond Fed's manufacturing survey Wednesday, which will help shore up the degree to which confidence improved after the May 12 tentative "deal". Improvements so far have been seen in Philadelphia, Dallas, and Kansas, with Chicago activity and NY Fed's Empire State current conditions indices lower vs April.
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US TSYS: Extraordinary Measures And Cash Look Sufficient To Head Off X-Date
Apr-25 20:32
Treasury has about $164B in "extraordinary measures" available as of April 23 to avoid hitting the debt limit, per its regular report out Friday. That's out of a maximum total of $375B (they have used $211B).
- With Treasury cash looking healthy (around $600B), that's a fair amount of dry powder to get through the summer months to wait out the debt limit impasse. Tax receipts have looked strong with tariff revenues also starting to boost cash flows, further reducing the near-term urgency to adjust bond issuance.
- This has also helped push back analyst “x-date” expectations to later in the summer/September. We expect to hear from Treasury about its own x-date assumptions next week.
US TSYS: Treasury Market Trading Stayed Orderly In April: Fed Report
Apr-25 20:25
Liquidity across financial markets including the Treasury market deteriorated after President Trump's April 2 reciprocal tariffs announcement but market functioning was generally orderly, according to the Federal Reserve's semiannual report on financial stability, released Friday. (PDF link is here)
- Treasury market liquidity has been poor for years and yields were particularly volatile in early April, contributing to a deterioration in market liquidity, the Fed said.
- Nevertheless "trading remained orderly, and markets continued to function without serious disruption," according to the report, which looked at information available as of April 11.
FED: Ex-Gov Warsh: Fed Has Failed To Satisfy Price Stability Remit
Apr-25 20:22
From our Washington Policy Team - Some fairly sharp words today from ex-Fed Governor Warsh on the central bank (who for what it's worth is seen by betting markets as by far the frontrunner for the next Fed Chair):
- The best way for the Federal Reserve to safeguard its independence is for policymakers to avoid expanding the institution's role over time, including wading into policy areas that are outside its core mission, former Fed Governor Kevin Warsh, a leading contender to replace Jerome Powell as chair next year, said Friday.
- "I strongly believe in the operational independence of monetary policy as a wise political economy decision. And I believe that Fed independence is chiefly up to the Fed," Warsh said in a speech at a Group of Thirty event on the sidelines of the IMF meetings. "Institutional drift has coincided with the Fed’s failure to satisfy an essential part of its statutory remit, price stability. It has also contributed to an explosion of federal spending." His speech made no mention of Trump's tariffs or the appropriate monetary policy to deal with them.
- He said the ideas of data dependence and forward guidance widely adopted by Fed officials are not especially useful and might even be counterproductive.
"We should care little about two numbers to the right of the decimal point in the latest government release. Breathlessly awaiting trailing data from stale national accounts -- subject to significant, subsequent revision -- is evidence of false precision and analytic complacency," he said.
"Near-term forecasting is another distracting Fed preoccupation. Economists are not immune to the frailties of human nature. Once policymakers reveal their economic forecast, they can become prisoners of their own words. Fed leaders would be well-served to skip opportunities to share their latest musings."
