The moment Fed watchers have waited for is finally here — albeit with less drama than many believed a few weeks back. Even as headline inflation measures appear to moderate, the robust labor market, evidenced by May's 4.2% unemployment rate, leaves Federal Reserve Chair Jerome Powell with little urgency to ease, writes Ed Yardeni, editor of Yardeni QuickTakes.
As we've long said, the two-day June Federal Open Market Committee meeting should come and go with the federal funds rate still in the 4.25%-4.50% range that it's been in since December.
For one thing, President Trump doesn't seem as ready to pivot away from his trade war as hoped. This week or next, Trump's Tariff Turmoil (TTT) could get a second wind as the White House previews “unilateral” import taxes.
For another, the quick escalation in the conflict between Israel and Iran has oil prices surging. So, between TTT, and the possibility that the Strait of Hormuz might be shut down, questions abound about GDP and inflation dynamics everywhere.
The Fed has lots of company this week. In Asia, for example, central banks in Japan, China, Indonesia, Taiwan, and the Philippines will announce rate calls. Like the Fed, the People's Bank of China (Friday) is seen leaving rates unchanged.
Meanwhile, as Fed members deliberate in the Eccles Building's chandeliered board room, they'll do so with a timely update on housing starts for May. The 1.6% month-over-month increase in April allayed fears that the Bond Vigilantes had yanked away the punchbowl on their own, via rising mortgage rates.
Yields have stabilized, and the job market is holding up well enough to keep housing on track for perhaps another monthly gain. Housing starts have held up surprisingly well at around a 1.4 million seasonally adjusted annual rate for about two years now.
