Fed's Powell says US may be entering period of more frequent and persistent 'supply shocks'

Economic

Summary:

Fed Chair Jerome Powell warned the U.S. may face more frequent and persistent supply shocks, leading to volatile inflation, and stressed the need for clearer Fed communication and stable 2% inflation expectations.

Federal Reserve Chairman Jerome Powell said Thursday that the US may be entering a period of more frequent supply shocks and volatile inflation, warranting more transparent communication practices from the central bank.

The comments came in a speech as Powell kicks off a five-year review of the central bank’s monetary policy framework.

"A critical question is how to foster a broader understanding of the uncertainty that the economy generally faces,” Powell said in his speech in Washington, D.C., predicting that "we may be entering a period of more frequent, and potentially more persistent, supply shocks."

That, he said, will be a "difficult challenge for the economy and for central banks."

He said higher interest rates adjusted for inflation may reflect the possibility that inflation could be more volatile going forward than in the inter-crisis period of the 2010s.

"In periods with larger, more frequent, or more disparate shocks, effective communication requires that we convey the uncertainty that surrounds our understanding of the economy and the outlook. We will examine ways to improve along that dimension as we move forward."

He noted while the Fed’s benchmark policy rate is currently well above zero — currently in a range of 4.25% to 4.5% — in recent decades the Fed has cut the rate by about 500 basis points when the economy is in recession.

Powell stressed it’s critical to maintain inflation expectations at 2% and that has been a hallmark of past assessments as well.

The Fed is undertaking a review of its monetary policy framework, a practice it does every five years. Back in 2020, during the last review, the Fed was concerned about pushing away the risk of deflation.

At the time, the Fed said that following periods in which inflation has been running persistently below 2 percent, they would likely aim to achieve inflation moderately above 2 percent for some time.

After inflation took off after the pandemic, Powell acknowledged that the idea of an intentional, moderate overshoot proved irrelevant to their policy discussions and has remained so through today.

Powell noted that in discussions so far, members of the Fed have indicated that they thought it would be appropriate to reconsider the language around aiming to essentially “overshoot” the long-run inflation target at times so that the inflation rate is close, or equal, to the Fed’s goal of 2% on average to guard against falling short of the target.

Source: finance.yahoo

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Warren Takunda

Economic

April retail sales suggests pre-emptive buying to get ahead of tariff-related price hikes faded quickly after a March spending surge. Meanwhile, subdued PPI indicates that, for now, companies are choosing to absorb higher costs in profit margins. That may not continue for long

We've had a really interesting set of US macro numbers this morning that in general suggest the Federal Reserve will be in a position to loosen monetary policy later in the year. April retail sales were broadly in line with expectations, rising 0.1% month-on-month (consensus 0.0%), but the “control group” is very soft at -0.2% MoM versus expectations of a 0.3% MoM gain. This measure excludes volatile items such as gasoline and autos and building materials and has a track record of better reflecting the underlying trend within consumer spending – remember retail sales only account for around 42% of total consumer spending.

Remember too that this is a nominal figure, so we need to deflate it to give us real growth as measured in GDP. That would imply perhaps a -0.3% or -0.4% MoM contraction. This would be a very poor outcome given that the market had expected a continuation of pre-emptive buying to get ahead of tariff induced price hikes. Electronic and furniture sales rose 0.3%, but most other components were flat or down. The only sector to see growth was eating out, which rose 1.2% MoM - note this is a category not particularly exposed to tariffs.

Meanwhile industrial production was softer than hoped in April with a flat outcome as manufacturing contracted 0.4% and utilities jumped 3.3%. The trend essentially remains a flat line.

Meanwhile PPI fell 0.5% MoM versus expectations of a 0.2% rise. That said, there was a big upward revision to the March data from -0.4% to 0.0% MoM. The core measure was also soft (-0.4% versus +0.3% expected), but again a huge upward revision. It either suggests a significant error in the calculation or they have had late data in that really swung things around in March. Nonetheless, the year-on-year rates have slowed markedly for headline PPI from 3.4% to 2.4% YoY and core drops from 4% to 3.1%. With last week’s CPI report also producing relatively benign 0.2% MoM outcomes there is little evidence, so far, that tariffs are inflationary and instead profit margins are being squeezed. But as Walmart suggested this morning, that is a situation that may not last long.

The PPI components that feed through into the core PCE deflator (the Fed's favoured inflation measure) suggest a 0.1% MoM print is possible for the core PCE. Portfolio management fees plunged 6.9% MoM while medical services were in general softer than the 0.5% MoM recorded in CPI. As such we still feel the Fed will be in a position to resume moving interest rates closer to neutral later in the year.

Source: ING

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Adam

Commodity

Crude Oil Drops on Iran Deal Prospects and Inventory Shock

Light crude oil futures plunged over 3% on Thursday, extending losses after a failed test of technical resistance. The downside move was driven by rising expectations of a U.S.-Iran nuclear deal and an unexpected crude inventory build, both weighing heavily on the supply outlook.

Resistance at $63.06 to $63.70 Holds as Selling Accelerates

Daily Light Crude Oil Futures

Tuesday’s rally stalled at $63.90, precisely where resistance from the pivot at $63.06 and the 50-day moving average at $63.70 converged. The failure to break higher triggered aggressive selling, with prices collapsing below key support levels.

The next technical focus is the minor pivot at $59.60—how traders respond here will shape near-term direction. Bulls may attempt to defend this level to carve out a higher low, while bears are targeting deeper support levels at $55.30 and $54.48 to force out weaker long positions.

U.S.-Iran Nuclear Deal Expectations Weigh on Sentiment

Market pressure intensified after comments from both U.S. and Iranian officials signaled progress toward a nuclear agreement that could ease sanctions on Iranian crude exports.

President Trump noted the U.S. was “very close” to a deal, while Iranian sources indicated willingness to negotiate in exchange for sanctions relief. Traders are factoring in the potential return of sanctioned Iranian barrels to an already fragile supply-demand balance.

EIA Inventory Data Surprises to the Upside

Compounding bearish sentiment, the latest Energy Information Administration (EIA) report showed U.S. crude stockpiles rose by 3.5 million barrels last week, a sharp contrast to expectations for a 1.1 million-barrel draw.

Total inventories now stand at 441.8 million barrels, signaling weakening demand or stronger-than-anticipated supply flows. The inventory build was another catalyst that accelerated Thursday’s sell-off, according to PVM Oil analyst John Evans.

OPEC and IEA Diverge on Supply and Demand Signals

Adding further complexity, the International Energy Agency (IEA) revised its 2025 oil demand growth forecast upward by 20,000 bpd to 740,000 bpd, citing robust economic activity and price-driven consumption support.

Meanwhile, OPEC acknowledged a weaker outlook for supply growth from non-OPEC+ producers, even as the broader OPEC+ alliance continues to raise output. This divergence highlights the uncertain path ahead for balancing the market.

Bearish Outlook as Supply Risks Increase

With inventory builds, diplomatic progress with Iran, and rising OPEC+ output, the fundamental tone has turned decisively bearish. Unless the $59.60 pivot holds, further downside toward the $55 range appears likely.

Traders should monitor U.S.-Iran negotiations and weekly inventory trends closely, as both could define short-term direction for crude oil prices.

Source: fxempire

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Glendon

Commodity

Economic

Gold steadied as investors pulled away from risky assets and waited for more clues on the Federal Reserve’s rate path.

Bullion traded near $3,180 an ounce, after dipping to the lowest level in more than a month earlier. Gold lost haven support in recent weeks as ebbing trade tensions between the US and China stoked risk-on sentiment, although that is now easing.

On Wednesday, signs that there will be fewer Federal Reserve rate cuts than previously anticipated pushed gold to a slump of more than 2%. Traders now await a speech by Fed Chair Jerome Powell later on Thursday, as well as data on US manufacturing, retail sales, initial jobless claims and producer prices.

Tighter monetary policy and higher yields tend to be negative for non-interest bearing gold, but they can also reduce the appetite for riskier assets like stocks and cryptocurrencies.

Gold largely shrugged off comments from President Donald Trump, who said the US might be getting closer to an agreement with Iran to curb the Islamic Republic’s nuclear program. An easing of geopolitical tensions sometimes leads to downward pressure on the safe-haven asset.

There could be further unwinding of long positions in gold, said Christopher Wong, a currency strategist at Oversea-Chinese Banking Corp. While some support should come in around $3,050-$3,150 an ounce, “gold may risk a deeper pullback towards $2,950 levels” if the support breaks, he said.

Gold is still up by more than 20% this year, fueled by a rebound in demand for bullion-backed ETF products, strong central bank buying and speculative Chinese demand. Investors had feared trade tensions stemming from Trump’s tariffs could spur faster inflation and a slowdown in growth, or even a recession.

Spot gold was little changed at $3,179.79 an ounce as of 12:18 p.m. in London. The Bloomberg Dollar Spot Index fell 0.2%. Silver fell, while palladium and platinum edged higher.

Source: Kitco

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Adam

Commodity

Gold and silver prices are slightly lower in early U.S. trading Thursday. However, selling pressure is being limited as risk appetite in the general marketplace has receded late this week. June gold was last down $2.90 at $3,185.40. July silver prices were last down $0.119 at $32.325.

Asian and European stock markets were mixed to weaker in overnight trading. U.S. stock indexes are pointed to weaker openings today in New York.

Said David Morrison with Trade Nation today in an email dispatch: “It now feels as if the market is in limbo. There’s still a lack of clarity surrounding the Trump administration’s trade policies and this has created a feeling of uncertainty over the global economic outlook. All eyes are now focused on talks between the U.S. and other trading partners such as Japan, India and South Korea. Meanwhile, there are concerns about the extent of damage that may have already been done since President Trump announced his program of reciprocal tariffs early last month.”

The key outside markets today see the U.S. dollar index weaker. Nymex crude oil futures prices are sharply lower and trading around $61.00 a barrel. The yield on the benchmark 10-year U.S. Treasury note is presently at 4.513%.

A very busy U.S. economic data dump Thursday includes the weekly jobless claims report, the producer price index, the Empire State manufacturing survey, the Philadelphia Fed business survey, retail sales, industrial production and capacity utilization, manufacturing and trade inventories, the NAHB housing market index. Fed Chair Powell is also slated to speak today.

Mild price pressure on gold, silver despite risk appetite waning_1

Technically, June gold futures bulls and bears are on a level overall near-term technical playing field but the bulls are fading. Bulls’ next upside price objective is to produce a close above solid resistance at $3,300.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $3,100.00. First resistance is seen at the overnight high of $3,195.60 and then at $3,200.00. First support is seen at $3,150.00 and then at the overnight low of $3,123.30. Wyckoff's Market Rating: 5.0.

Mild price pressure on gold, silver despite risk appetite waning_2

July silver futures bulls and bears are on a level overall near-term technical playing field. Silver bulls' next upside price objective is closing prices above solid technical resistance at $33.48. The next downside price objective for the bears is closing prices below solid support at $31.00. First resistance is seen at $32.50 and then at $33.00. Next support is seen at $32.00 and then at the overnight low of $31.78. Wyckoff's Market Rating: 5.0.

Source:kitco

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Warren Takunda

Economic

The cost of Republican lawmakers’ draft plan for sweeping tax cuts weighed in at $3.8 trillion over the next 10 years in one official estimate. The reality is likely much higher, thanks to the use of budget and political tools designed to minimize the appearance of the fiscal hit, according to independent analysts including former Republican staff members.

Budget experts typically calculate the cost of legislation, or “score,” over a 10-year period. But President Donald Trump’s headline-grabbing pledges to remove taxes on tips and overtime are supposed to expire after just four years in the latest bill. That has effect of downplaying the potential revenue loss if the measures are extended — which Congress has a tendency to do.

It could also raise concerns among investors and economists about the scale of future borrowing needs for a government whose debt load is on track to surpass 118% of the economy’s size by 2035, potentially undermining confidence in US securities. GOP Tax Bill Seen Masking More Than $1 Trillion Hit to US Debt_1

GOP Tax Bill Seen Masking More Than $1 Trillion Hit to US Debt_1

Republicans are quick to defend the size of the tax cuts, saying they will grow the economy and, with Trump’s tariff policies, bring in trillions of dollars of added revenue to federal coffers — along with savings found by the Elon Musk-led Department of Government Efficiency.

Speaker Mike Johnson is aiming to secure House approval later this month for a bill that, along with providing Trump’s new benefits, makes permanent the lower income-tax rates set in Trump’s 2017 package. Those rates had been scheduled to expire at the end of this year — something that had limited the official cost of that package in Trump’s first term.

Analysis by the Committee for a Responsible Federal Budget, a centrist fiscal watchdog group, shows that extending the new benefits for a full decade would take the cumulative increase in the deficit to $5.2 trillion. That compares with an official congressional Joint Committee on Taxation tally of $3.8 trillion. After factoring in spending cuts in Medicaid and other items, the CRFB estimated the deficit boost at $3.3 trillion. GOP Tax Bill Seen Masking More Than $1 Trillion Hit to US Debt_2

GOP Tax Bill Seen Masking More Than $1 Trillion Hit to US Debt_2

While both Republicans and Democrats have previously used budget tricks to portray a better fiscal impact, the scale of the potentially hidden effects of the GOP tax package is striking, said Marc Goldwein, senior policy director at the CRFB.

“The entire reason they did this temporarily was to reduce this cost,” Goldwein said. “They are basically trying to hide” the additional costs, he said.

Trump and his cabinet members have argued that official scoring fails to capture hundreds of billions of dollars of future revenue from increased tariffs. They also claim that the administration’s deregulatory agenda will lift burdens on businesses, boosting growth.

Jason Smith, the GOP chair of the tax-writing House Ways and Means Committee, has blasted Democrats opposing the bill for effectively seeking “the largest tax hike in American history.”

Growth Outlook

The combination of Trump’s tax cuts, savings and de-regulation means a more likely deficit impact of below $2 trillion over the coming decade, Richard Stern, a fiscal expert at the Heritage Foundation, a conservative-leaning think tank.

“The spending cuts are not going to hold back growth — they are not cutting critical services or going to hold back business flows,” Stern said. “These are cutting largely wasteful and fraudulent spending.” GOP Tax Bill Seen Masking More Than $1 Trillion Hit to US Debt_3

GOP Tax Bill Seen Masking More Than $1 Trillion Hit to US Debt_3

Even without adding to US borrowing needs, the existing run rate has the federal debt burden on a trajectory that most observers, including Treasury Secretary Scott Bessent, view as unsustainable. Annual deficits have been clocking near $2 trillion in recent years, or more than 6% of gross domestic product.

The debt-to-GDP ratio is heading for a record high in just four years’ time, according to the nonpartisan Congressional Budget Office.

Trump has dubbed the legislation, which includes a slew of spending reductions yet to be specified in detail, “one big, beautiful bill.” Barclays Plc economists on Wednesday titled a research note on the topic, “One big, beautiful” deficit. “Investors in longer US bonds are unlikely to be happy,” they wrote.

By the calculation of G. William Hoagland at the Bipartisan Policy Center, sunsetting many Trump’s new benefits after four years, the tax bill saved roughly $500 billion.

The draft bill has a deduction for senior citizens sunsetting in four years, with an expanded child tax credit of $2,500 ending Dec. 31, 2028.

“This is an old trick the tax writers do,” Hoagland, a former congressional Republican staff member, said of phasing out a benefit. “From a fiscal perspective, it underestimates the real cost of these bills."

Rohit Kumar, national tax office co-leader at PricewaterhouseCoopers LLP and a former top Senate policy aide, said that if provisions prove “super popular, whoever’s running for president in 2028 can run on renewing them.”

The other way lawmakers tried to cut the bill’s cost was to was “to put the guardrails around who qualifies,” Kumar added. This included adding income limits for a new deduction aimed at retirees, as well as detailing which industries were eligible for the no-tax-on-tips provision.

Ultimately, the four year time line for when the tax cuts expire will only stoke uncertainty for both businesses and individuals, said Goldwein at the CRFB.

“How can you plan around a tax code when large parts of it expire in four years,” he said.

Source: Bloomberg

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Adam

Economic

U.S. consumers spent slightly more at retail stores last month after ramping up their shopping in March to get ahead of tariffs.

Sales at retail stores and restaurants rose just 0.1% in April from March, the Commerce Department said Thursday. That is much lower than the previous month's 1.7% gain, which reflected a surge in car sales as consumers sought to get ahead of President Trump's 25% duty on auto imports that went into effect this month.

Last month's tiny increase after the March surge makes it harder to get a clear read on consumer spending trends and reflects the ongoing turmoil and uncertainty in the economy in the wake of Trump’s stop-and-go tariff policies. Many publicly-traded companies have withdrawn or held off on the traditional practice of forecasting their revenues and earnings for the rest of this year because the economic landscape has become so chaotic.

Meanwhile, Americans are increasingly gloomy about the economy’s prospects, according to sentiment surveys.

In April, sales were flat or down for many retailers: They plunged 2.5% at sporting goods stores, which saw prices jump last month, according to the government's inflation report earlier this week. Sales dropped 0.4% at clothing stores, while they ticked down 0.2% at health and personal care stores and slipped 0.1% at auto dealers.

Gas station sales dropped 0.5%, even as prices declined 0.1%. The figures aren't adjusted for price changes.

Trump imposed sky-high tariffs on imports from China last month that fueled fears of a recession, higher inflation, and even the specter of empty shelves by the winter holidays. But on Monday the U.S. and China announced a deal that sharply reduced the duties, at least partly assuaging those concerns.

Retailers still face a lot of uncertainty around tariffs and how shoppers will react to higher prices after several years of sharply rising costs.

A government report, released Tuesday, showed that inflation cooled for the third straight month in April, though economists and many business owners expect inflation will climb by this summer.

Trump had imposed massive 145% import taxes on Chinese goods last month, thought they were reduced to 30% for the next 90 days in a deal announced Monday. China reduced its retaliatory duties to 10% from 125%.

Also Thursday, retail giant Walmart said its sales grew at a solid pace in the quarter ended April 30, as their customers stepped up purchases of groceries, toys, automotive goods and kid’s clothes. Yet profits slipped and CEO Doug McMillon said the company would soon raise prices to offset the impact of tariffs.