Fed Watch – 6/13/2025

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

Hello, I’m Brian Beaulieu. Thank you for joining us for this edition of Fed Watch. Today is June 13, 2025. That’s right. It’s Friday the 13th. What could go wrong?

Let’s take a look at what’s going on in the numbers. It’s fascinating to me that people are assuming no change from the Federal Reserve in terms of interest rates in June, but there’s a growing consensus that there’s going to be a decline in September. I’m not as convinced as others, although I can see where they’re coming from. For instance, the Red Book weekly retail sales data that we’ve been talking about is up 4.7% year over year. So last week retail sales were up 4.7%. That’s a good number from a historical standpoint. But it was 6.1% two weeks ago. When I looked at that trend, it looks like what happened during 2015 and 2016. It’s interesting because a lot of our forecasts of IT are mimicking that 2015, 2016 period. It was a very sluggish time because there was an underlying lack of momentum in the economy, and that pretty much describes what Redbook is telling us, the Dallas Fed weekly economic indicator, same thing. Those last two weeks in particular, it’s sort of like “blah”, it’s not telling us a whole lot.

I think the best news out of the recent data is that the uncertainty index has finally come down. Gosh, do we need some certainty. Decision making has just slowed down to a crawl. People are trying to figure out what does all this mean? Where is the economy going in the United States? And uncertainty coming down, taking this first step down, I think is a relief rather than seeing it go the other way. And we should be getting getting slowly but surely some more clarity. Seeing that come down some more really will help unfreeze some of the decisions that seem to be in Neverland.

CPI and the PPI came out this week. The consumer price index for May was at 2.4%, that’s up from 2.3% year over year. 12/12 is still in phase C at 2.7%. So the 1/12 is still running below the 12/12, which is cool. I did some analysis today right before the show. We use something called a five year rate of change here at ITR to tease out longer range pressures and trends within a data series. And that five year rate of change on inflation is heading gradually higher, which suggests that our forecasts that we’re about at the end of the current trend for a decline in the consumer price index is probably right on in that we’re poised for another round of inflation, generally speaking between now and the end of the decade.

Food prices were up 2.9% on the CPI. That’s not real comfortable for folks, but it’s not the end of the world. Energy was down 3.5%, which is fantastic. That was led by gasoline coming down 12% going into the summer driving season. That’s really good news to help people feel better anyways about taking those road trips. Israel and their actions against Iran last night caused a kerfuffle in the oil markets overnight. But I’m hard pressed to see where that’s gonna lead to any sustained bump up in oil prices, given that OPEC has opened up the pipeline and we really don’t have an inventory problem here in the United States.

Shelter is still expensive in the United States, up 3.9% year over year. That continues to be a problem. That’s rent and rental equivalencies. Core inflation is at 2.8%, it’s been stuck at that for the last three months. So in other words, we’re settling into this trough that we thought we would be at about this time in the business cycle. We expect it’s gonna remain relatively benign, but the PPI is telling us that we may be seeing some upward pressure on consumer prices as we head toward the end of this year.

There was chatter out there and you’ve probably heard it about the jobless claims data being indicative that the Fed’s gonna be lowering interest rates come September. You know, it depends on how you wanna look at the data and that’s the problem with a lot of us economists, right? When I looked at the data, it is not problematic. It is a little bit elevated on an unadjusted basis, but it’s not unusual for this time of year. It was only 423 people higher than the expectations on an unadjusted basis. So not a big deal, although other folks are making it out to be more than it is, in my opinion, using the seasonally adjusted data, which you know at ITR, we don’t like using seasonally adjusted data because it just renders an impurity element into the data.

10-year bond deal was successful earlier this week despite the weakening dollar, but there’s a word of caution in there. We’re running about 120 bips higher than the Canadian 10-year bond yield, the U.S. dollar is weakening on the international scene and it’s weakening against the loonie. And there’s chatter out there if you’ve been reading the Wall Street Journal about how foreign buyers are reticent to buy our bonds because of they need to cover the exchange rate risk of the dollar continuing to go down.

And as you may have read about in the Trends Report, we’re already getting some leading indicator signals regarding 2027. So make sure you make hay while the sun shines in 2026. Mortgage rates are essentially flat and we don’t see anything exciting going on there, nothing terribly helpful or harmful for that matter in the short term. That’s what’s going on this week. Today’s Friday the 13th and I hope you have a great weekend. Thanks for joining us.