Consumer spending resilient so far

Last week brought a relative sense of calm to most markets as talks continued between the US and Iran, however fragile they may be. Stocks and bonds were little changed through the week, though the price of oil surged back toward the $100 mark as the Strait of Hormuz remained essentially closed to traffic.

This week, geopolitics will share the spotlight with the Federal Reserve. Chair Jerome Powell will helm what may be his final meeting as Chair. His named successor, Kevin Warsh, testified before the Senate Banking Committee last week. Lawmakers pressed him on financial disclosures and his true opinion about the central bank’s independence from the White House. Warsh rejected claims he would be Trump’s “sock puppet.”  Powell has previously said he will remain as interim chair until a successor is confirmed.

The meeting itself is unlikely to deliver a major surprise, with no rate moves expected. Even so, investors will still listen carefully to how the committee views the current environment. Higher fuel prices are pressuring household budgets, but so far the US consumer has remained resilient.

On the data front, retail sales in April were stronger than expected. While an increase in gasoline spending was anticipated, core spending also exceeded expectations on a month-over-month basis. Business activity appeared to rebound from March, though the details were less encouraging from an inflation perspective. According to the S&P PMI release “input cost inflation accelerated and supply delays worsened at a pace not seen since mid-2022.” Employment trends remained mixed as initial jobless claims were fine but partially overshadowed by more high-profile headcount reductions in the tech industry.