Ups and downs

The labor market has moved from a boil to a simmer. Since just before last Halloween, weekly jobless claims have risen 45%, to 264,000 this week. For context, this amount is back to late 2021 levels, before 18 months of approximately 200,000 per week. So, returning to a more normal level but still well below historical averages. 

Consistent with easing labor market pressure, both wholesale and retail inflation pressures have fallen somewhat, though not far or fast enough for the Federal Reserve to take great comfort. Consumer prices rose 0.4% in April, and 4.9% over the last year, down from 5% in March. Positively, food prices were unchanged for the second month running, and food at home fell 0.2% in April, after falling 0.3% in March. But of course there is an offset, which in this case was a 0.6% rise in energy prices, led by a 3% rise in gasoline. 

Markets took comfort in the calmer CPI release, viewing it as confirmation that the Fed may slow, or possibly even end, its rate hikes. Reflecting this hope, Treasury yields fell and fed funds expectations pointed to no additional hikes, keeping alive the possibility the Fed may even cut rates later this year. Policymakers have continued to say that when they do pause, they likely will keep rates high until inflation has convincingly retreated. As always, they will wait to see how the economy performs before committing to a specific course of action. 

In any case, consumers might be souring on the economy, though the clammer about the failure to raise the debt limit might be taking its toll. The flash University of Michigan's consumer sentiment was 57.7 this month, down from 63.5 in April and the lowest since last November.