Fed Watch – 5/23/2025

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 joining me for the May 23rd, 2025 FedWatch. We’re going to go through the data that came out this week, the bulk of it. If you just look at the data, we have the Fed saying, okay, we could lean a little bit toward interest rate decline because there was weakness in the automotive sector, April data, and in the housing sector, April data.

But it’s April data. It’s hard to get too excited about some off readings in April given the tariff grenades that have been going off and are still going off today, as a matter of fact. So just take a breath, go through this, and understand that the weekly data that we’re going to take a look at, in particular, the Redbook data and the Dallas Fed’s WEI weekly economic indicator are saying, just relax,

it’s going to be okay. And therefore, when I combine the weekly data for May with what’s going on in the bottom market, I think the Federal Reserve would be hard pressed to lower interest rates anytime soon.

And I know people are still saying that probably in the second half of this year, but they’re expecting the economy to get worse in the second half of this year. And that’s not how we’re seeing it with the leading indicators.

Doesn’t mean the economy is out of the woods by any means, you know, very carefully watching how real personal income is slowing down a little bit too much. That needs to pick up a little bit to get some more bigger into the economy.

The initial unemployment claims were down 2000 from… the previous week, which is good. And the fact that that weekly is at 5.0 and the four week is at 5.7 means it’s almost like a 112 versus 1212. There’s some easing of that initial pressure in the unemployment numbers, at least the initial claims.

So it’s there, we’re watching it carefully, but it’s April. So we’re not gonna get overly concerned and the May data points are coming in pretty good. Automobiles, as I mentioned, were not great. That continues to be a recession industry.

After 12 months of decline, the 12 month moving totals down 3.8%. That’s a milder than normal decline for the automotive industry, but it is clearly a weak point. That represents discretionary spending on the part of the consumer.

So I’ll have to keep an eye on that. We saw a rush of sales in March to try and beat the tariffs. I’m sure the automotive retail sales data for May is gonna be more telling than what we’re eventually gonna see for April retail sales.

Single family permits, housing permits are in their 11th month of the decline and that is a 2.5% decline over 11 months. And that’s unprecedentedly mild. So again, the trend is negative, but it’s not like, oh my gosh, we’re falling into a prayer or a cliff or anything else like that.

Existing home sales, we’re also weak again, slipping back into phase D as a matter of fact on the 312 rate of change. So you could be wringing your hands. But when I look at the bond market, the tried and true view over the financial future, the fixed rate mortgage is at 6.86%.

That’s up about five basis points from last week. And that’s in a gentle rising trend. It’s still less than seven, which Freddie Mac makes a point of mentioning, but it is creeping up, which means the outlook in the bond market is that there’s this inflation out there that needs to be accounted for.

And that’s not going to give the federal whole auto wiggle room when it comes to lowering interest rates. The US government 10 year bond yield was up again, it was up eight points. It’s at 4.508%. And it too has been rising since early April.

I was just reading before coming on that the president is telling Apple they’re going to have to pay a 25% tariff on funds because he’s insisting they be made in this country. That’s all going to be.

Very interesting to see how all of that plays out, but it spells inflation and that’s what the bond market is calling for. Threatening a 50% tariff on the European Union carte blanche. Again, that spells higher prices, not all 50% prices on credit go up 50%, but it does mean that you’re embedding some inflation in there.

And that’s what the bond market is seeing and that’s what the Fed has to be seeing also. We’ll keep an eye on things, how the May data continues to unfold through the weekly data and we’ll be getting some more April data points.

But again, I tend to discount those in terms of relative importance because the consumer and the business world was in shock in April. We’ll see you next week. Thanks for watching this edition of Fed Watch.