Consumer prices in the U.S. have been benign since February, and the May reading continues that trend, according to the Bureau of Labor Statistics’ consumer price index report released Wednesday. Meanwhile, the May jobs report, while better than expected, revised downward the figures for March and April, exposing some weaknesses in the labor market.
In ordinary times, the scenario of muted inflation and a job market that’s starting to wobble would make cutting interest rates — a move that tends to boost the economy, sending prices and job openings higher — an easy decision for any central bank.
But we aren’t living in ordinary times, as Jeff Cox pointed out.
Global trade is still snarled by U.S. President Donald Trump’s tariffs. Even though the United States and China seem to have reached an agreement on upholding their earlier trade pact in Geneva, there’s no telling if tariff numbers will change, despite reassurances from the White House that they wouldn’t. Besides, the current 55% tariff rate is still too heavy to bear for many U.S. importers. The fact that the S&P 500 fell despite the reaffirmed framework between U.S. and China is another sign investors are growing wary of taking trade pronouncements at face value.
The volatile tariff situation also means that data since April, and for the foreseeable future, could be fuzzy. “Today’s below forecast inflation print is reassuring – but only to an extent,” said Seema Shah, chief global strategist at Principal Asset Management. “Tariff-driven price increases may not feed through to the CPI data for a few more months yet, so it is far too premature to assume that the price shock will not materialize.”
When it’s hard to rely on official communication and hard numbers, the U.S. Federal Reserve — and investors everywhere — have to navigate the path ahead a little blinder than usual.