Fed Watch – 5/16/2025

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

Hello, I’m Brian Beaulieu. Thanks for watching this edition of Fed Watch.

Spoiler alert, the data that came out this past week was really good news. And that means the sum total of all the news is the Fed has really no interest in lowering their Fed funds rate. They don’t have a reason to be worried about the economy at this time. They have a reason to be worried about more inflation in the future. And we’ll get to that in just a moment. But the sum total is don’t expect Fed funds rate to be moving the next time they meet. The data just isn’t pointing in that direction. In fact, the bond market, if anything, is suggesting they’re seeing a little bit more inflation out there in the future. Just enjoy the good news for the economy, for those of you who do well when the economy is doing well.

The thing is, Walmart announced, you may have seen it in today’s Wall Street Journal, that they are indeed going to be putting through some price increases because of the tariffs, even if the tariffs just stay where they are today. And that would be great relative stability. They’re going to be putting through some price increases. And the expectation is if Walmart does it, despite their ability to beat on suppliers, we’re gonna see more retail price increases coming.

And this will be the inflation. People were looking for the inflation to happen right away. It happened in the B2B space right away. It takes a while for it to get to the B2C space. And we’re gonna start seeing that this summer is the way it looks. In fact, president of Ford was saying that, you know, tariffs come to about $5,000 on imported cars. And according to him, half the cars sold in America are imported. So there’s gonna have to be some price increases on automobiles this summer. Again, it’s future inflation. The Fed’s gonna look at that and say, that’s a threat, there’s no reason, why would we wanna lower interest rates in this environment?

Good news is gasoline’s down 11.8%. That’s kind of cool. And also good news is that alcohol is up only 1.8%. So the two things that really matter most in consumer America are doing well. Food is up only 2.0% despite Mexico and Canada, buhaha. Let’s hope it stays quiet like that. The latest Redbook data shows a 5.8% increase in the first week of May compared to the first week of May a year ago. That’s flipped a little bit. It was 6.2% the last time we spoke. So it’s gonna have some volatility today because it’s weekly data. The overall trend is that number is slowly edging up and we expect it’s gonna continue to do that as we go through the rest of 2025, that’s a great sign for where the economy is going.

And the latest Dallas fed weekly economic indicator is also showing consistent growth in the economy. It’s nothing to worry about it according to the Fed data and the Redbook data as we rounded the bend and started plowing through May. So relax, the world isn’t falling apart. I just wrote a blog on why we haven’t changed our GDP forecast, why we don’t need to change our GDP forecast. So you might wanna go online and check out that blog and we’ll go into it here.

Overall retail sales for the month of April are out now and that showed a 5.2% year over year increase in the raw data. And that 5.2 is in phase B so it’s getting better which is exactly what we had hoped to see. The onset of seasonal rise in April is normal. It’s a little bit better than each of the last two years. Another good sign that the consumer isn’t running into the woods and hiding or doing whatever they do if they just don’t want to be out there spending, they apparently want to be out there spending. And they’re about to get some tax refund money most likely so they’ll be out there spending a little bit more.

For those of you that are concerned about credit delinquencies and that sort of thing, the team asked me about the buy now pay later phenomenon, how 41% of those are delinquent. It’s true it’s it’s not that big of an industry and the number itself when you look at what is delinquent tends to get covered the next week. These are just people who forget to pay because you have to pay on a regular basis and it’s new and they’re not used to it. And the total amount of delinquency amounts to 4.3% of the total credit card delinquency so it’s really a small number. That’s not a problem going forward.

U.S. Industrial Production came out yesterday and we have had the 1/12 rate-of-change now stay above zero for five consecutive months. It’s at 1.4% so we’re not torching these trends, but we didn’t see a big collapse either so you’re not going to get a rapid escalation in the rates-of-change. What’s really cool, and you can tell I have no life, but it’s really cool is the 12 month-moving-average for U.S. Industrial activity in the United States U.S. industrial production is just 0.3 percent below the pre-covid record high and that’s good. We’re finally clawing our way back and we will exceed our previous growth peak for industrial activity in the United States. And if, and it’s a big if, if there’s any benefit from the tariffs in terms of bringing manufacturing back to the United States it’s not even going to show up in these numbers for quite some time, so that’ll just be additive when we’re up there beyond 2025 and likely beyond 2026-27. But it’s good news. Again the Fed’s going to look at that and say there’s no need for us to be worrying about the economy and lowering interest rates, it’s just not a problem.

The latest PPI data showed the same thing, although here the core PPI was more elevated as opposed to the CPI, it was at 3.2 percent and that suggests to us that there’s going to be a limit to how much cooling off we’re going to see in the CPI.

30-year mortgage rate crept up five basis points since last week it’s at 6.81 percent so it’s still below seven. Grab these rates while you can and make them work for you. And the 10-year U.S. Government Bond Yield has been trending higher since early April, it rose another seven bips over the last week, and that’s at 4.42% just below the 4.5% long-term average. So it’s still in good shape, but it’s going to be going up. You can count on that. The inflation rate will be rising for all the reasons that we’ve talked about. The economy is getting better, and therefore I wouldn’t expect much out of the Federal Reserve, and I certainly wouldn’t expect much out of the bond market.

But the good news is we are seeing the economy slowly improve. It’s not rising rapidly, but it is rising, and considering everything that we have been through, rise is a beautiful thing. So enjoy the weekend. We’re going into what I think, I hope is a nice weekend for you with a little bit more relaxation knowing the economy is holding it together, and it’s only going to get better. Thanks for watching. We’ll see you next week.