Will the Fed listen to negative consumers or positive employers?

It was another bumpy week, though markets generally held a more positive tone as the S&P 500 inches its way back towards Liberation Day levels. The recent bout of positive momentum has been driven by a combination of strong corporate earnings, hopeful headlines on trade talks and President Trump’s retraction of select auto tariffs.  

Despite the recent market optimism, the US consumer still seems to be cautious. The Conference Board’s April Consumer Confidence Index slipped to 86, its lowest reading since May 2020. The consumers surveyed grew more concerned about the future state of the job market and expect meaningfully higher inflation over the next 12 months. Specifically, the one-year forward inflation expectation increased to 7%, the highest level since November 2020. This combination is not one the Federal Reserve wants to develop, as it potentially puts its dual mandate of price stability and maximum employment at odds with one another. We will know policymakers’ thoughts soon enough, as the FOMC meeting takes place this week.

While consumers may be growing more concerned about the labor market, the data continues to indicate that employment trends are chugging along, albeit at a potentially slowing pace. The US added 177,000 jobs last month, below the 185,000 from the prior month, but better than economists had feared and in line with the 150,000-200,000 level typically viewed as a healthy level of job growth. Furthermore, the unemployment rate was unchanged at 4.2%.

Other economic releases last week included a first-quarter GDP report showing that economy contracted -0.3%, though most of this decline was driven by a significant increase in consumer goods imports, likely reflecting a front-loading of inventory before tariff increases.