Fed Watch – 4/25/2025

The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hello. Welcome to the April 25th edition of Fed Watch. I’m Brian Beaulieu, currently Chief Economist of ITR Economics.

A lot of news came out, some of it distorted. We’re going to take it by, you know, by the numbers. I’ve segregated the activity this week into not so good for the economy or potentially bad for the economy. And well, you know, it’s pretty good for the economy. Spoiler alert, there is four bad pieces of news and three good pieces of news. So if anything, it could give the Federal Reserve some fodder for lowering interest rates.

You know, historically, and I saw this back in the late 70s and early 1980s, when the president really badgers the Federal Reserve chairman or the Federal Reserve in general to move a certain way, they tend to dig in their heels because they don’t want to be seen as losing their independence. I don’t know how quickly the Fed’s going to work. They may decide, you know, it’s enough of a mixed bag here.

We have concerns, as I mentioned last week, about the 2Q 2025 GDP. Not that it’s going to go down necessarily, but that it’s going to be weaker than it otherwise would have been in terms of the increase from the first quarter. And some of the data along those lines to support that would be Automobile Production here in the United States. The March data came in below a year ago, level by 0.7% for the last three months. So therefore, for the first quarter of 2025, production in the US was down 6.8%. Our forecast said, even before all this tariffs, that we’re gonna face this headwind. The recession’s been going on for 11 months now, and it’s slightly milder than normal at minus 3.2%. We think this thing’s gonna go on through the first half of 2025 before we start to see it come around a little bit. Canada’s worse off than the United States is, and Mexico’s doing better than the United States is. Mexico’s up 3.7% for the first quarter of 2025. All of that could change, obviously, with the tariffs, but automobile manufacturers are pressing pretty hard on the administration to at least lift car parts from the slate of tariffs. So we’ll have to see how that goes.

I think that the biggest negative that came out, and at ITR you know we’re not big fans of this number but it gets a lot of headlines and it may sway some people I suppose is consumer expectations came up for March, April rather, and wow. Wow, it was the lowest consumer expectations reading since 1981. That’s right, over 44 years ago in a few months, you have to go back to find a worse reading. The people are not happy, the stock market isn’t happy, maybe all of this will add up to some increased certainty which is what everybody continues to crave. The uncertainty index remains at an all-time high and our phone’s ringing up to hope with people wanting to know what the heck is going on.

Existing home sales came in at a negative, down 2.4% from a year ago. Permits for single family homes also came in below a year ago, the 3/12 is not looking good at all at minus 3.6% so it’s in phase D. Those are not great. What is encouraging, the good pieces of news, single family new home sales rather not existing home but new home sales were up 6.2% year over year and the month to month change was a solid gain. It was slightly better than normal so that was good. I mean that was a bright spot.

The other bright spot was money supply. We deflate it for inflation, which is at it’s highest 1/12 rate-of-change in three years. The Fed is putting some money back into the economy that’s much needed liquidity and that’s an important balancing act going on there between, at least they’re increasing the money supply even if they’re not lowering those interest rates.

And then the final piece of good news was really buried and I found it by because of a Wall Street Journal piece of bad news. The Wall Street Journal was saying that a number of people making minimum payments on their credit cards is now back to a pre-COVID high. And it’s true, we are looking at elevated numbers there, but the delinquency rate is not bad. The delinquency rate also above pre-COVID highs though, is well below what we experienced from 2009 through 2012. In fact, we’re running in the range right now in the delinquency rate about what we saw 2012 through 2019. It’s not a big deal. We don’t see it as worrisome at this particular point.

And the weaknesses that we are seeing, as I alluded to with automobile production and with the housing market, it’s what we expected. And the retail sales number that was revised today, that 12MT came in with a 99.9% accuracy rating. So we’re not into the thick of the potentially mucky data, which is going to be the 2Q, but we’re not seeing any overt weakness going into the second quarter. And we’re continuing to watch the weekly data. And through mid-April, retail sales were holding up based on the red book data. And the Dallas Fed data is telling us, be calm, take it down a few notches.

And that’s our encouragement to you. When interest rates come down, if they come down a little bit more, grab them. That hasn’t changed because on the other side of this is not Armageddon. On the other side of this is business cycle rise. So grab the gusto while you can.

We’ll see you next week. Thanks for watching this edition of Fed Watch.