Fed Watch – 5/2/2025

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

Hello, happy May 2nd. This is Fed Watch, and we are one week closer to clarity. I’m psyched, I hope you are too.

The latest data is not what it seems at first glance, anyways. For instance, the first quarter data of GDP came out, but not so great. In fact, it was down, although the amount it was down to the fourth quarter was unlike anything that would be constituted as normal, even for a decline. In other words, it was statistically driven. It was because imports were up over 40%, and because defense spending was down 8%, expense spending was down because the budget shenanigans and imports went up, because people were front running the tariffs.

Those aren’t going to keep going that way. So that’s a good reason to expect that we’re not going to have a technical recession or another consecutive quarter decline. It doesn’t mean that it’s beyond the realm of probabilities, just means even if we must slip a little further it’s not because the consumer is out of shaped, they’re not. It’s not because it’s some fundamentally broken part of the economy. If the consumer is not out there spending in the second quarter, and so far they are, but if they are not by the end of the second quarter, it’s likely because the stock market has them reeling. And because first quarter disposable personal income, which is after tax income, while up year over year, at 1.5% increase from a year ago, it’s just that isn’t enough to really make for a strong time.

Jobless numbers came out and they were healthy enough at 177,000 season adjusted. Anything but 150 and we are good, so that’s score one for the economy and continuing to grow. As you know, we’ve started looking at weekly data and the weekly economic indicator is at 2.66 for the week ending in April, sorry, 2.27 for the week ending last week. So we’ve started a little slippage in the weekly indicator, but it is still showing that there’s growth going on in the economy. And you know, we’ve started watching the Red Book data and that’s showing that sales are up 7.2% for last week compared to the same week one year ago. So, you know, there are worse things.

The news was all about how the export index for China fell and what a harbinger of doom that is. It goes back to the same export surge that they experienced in China because we wanted an import surge. So, of course, there’s a big drop for March to April. This was one of those “duh” moments. What are you getting all upset about?

Is the economy doing great? No. Are we going to slick it along? Yes. That’s what we see when we look at the leading indicators. Rightfully, expect some sluggishness. Mortgage rates are good at 6.76% as of yesterday’s close. I’d go to 15-year myself at 5.92 as long as I was sure I was going to have a job going forward. That’s a big difference, 6.76 to 5.92. I’d encourage my kids, if they were in the housing market, to really look hard at that lower rate, or at least make multiple extra payments over the course of the year to pay down that interest rate.

Yesterday, I was talking to a group, a fantastic group, Wood Industry Association, and I ended up having to clarify a point. So, I want to do that now with all of you. I suggest people that are Gen Xers, boomers, we have as much cash and we’d be essentially debt-free come 2030. That’s ITR taught for a long time now. But the question came up, well, what about the younger folks, the younger millennials, or even the older millennials for that matter? Then there’s Gen Z. The name of the game there is make sure you’re not carrying any credit card debt by the end of this decade. Make sure that you’re living below your means and you’re saving at least 10% of your salary. That’s the younger generation’s version of being debt-free. And other countries even pay for cars without going into debt, so it is possible.

Fed’s going to meet on May 6th, May 7th. We agree with the street. They’re not likely going to change interest rates because the data is mixed enough that they don’t need to at this particular point in time. But first, April data, besides the retail sales and the weekly economic indicator, will give them some backbone in terms of wait and see what this economy is going to do. And we continue to see it getting better in the second half of 2025, albeit slowly.

Thanks for watching this edition of Fed Watch, and we will see you next week.