It’s been as busy as it gets for market-moving economic events this week, with a stronger-than-expected headline jobs number, a softer-than-expected inflation report, and an update to the Federal Reserve’s projected rate path.
Last Friday’s jobs report was generally strong, aside from the unemployment rate rising to 4.0% from 3.9% (chart below). The economy saw broad-based job gains, adding 272,000 jobs in May – well above forecasts for 180,000 jobs added. And wages grew 0.4% from April – also above expectations and a sign that wages are keeping upward pressure on inflation.
However, yesterday’s lower-than-expected CPI data helped alleviate some inflation concerns. Headline CPI saw 0% growth from April, marking its smallest monthly change in almost two years, and pulling its annual rate down to 3.3% (chart below, orange line). Meanwhile, core CPI saw its smallest monthly increase – up 0.16% – in nearly three years, which lowered its annual rate to 3.4%.
Importantly, the closely watched core services excluding rent was also flat from April (blue bars), thanks to declines in airfares and car insurance. The one disappointment in the report was that rent inflation rose 0.4% (purple bars) – in line with its average increase this year, so rent inflation proved stubborn in May.
Despite the soft inflation data, the updated Fed projections called for just one rate cut this year, down from the three they estimated in March. But the Fed did increase projected cuts in 2025 and 2026 to four cuts each year, up from three each previously.
Markets, however, disagreed with the Fed’s projections for this year – still pricing two cuts this year (chart below, orange line), likely in September and December.
In terms of performance, markets were mixed in response to the data and updated Fed projections. As of 2pm, 10-year Treasury yields are down about 5 basis points to 4.25% over the last week, and the Nasdaq Composite is up 3%, but the Dow is down 1%.
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