May’s inflation report, released yesterday, was lower than expected, as was May’s inflation report yesterday. The final demand for personal consumption edged down to 2.6% y/y in May, while the rose only 2.4% during the month (chart).
Both suggest that May’s might have dropped to 2.0%, which would finally be down to the Fed’s target for this inflation rate. The Cleveland Fed’s Inflation Nowcasting for PCED inflation is a bit higher at 2.3% for both May and June. Either way, the relevant data suggest that President Donald Trump’s tariff hikes have yet to boost consumer price inflation as widely expected.
Furthermore, and remain subdued, suggesting that the labor market and the economy may be more resilient to Trump’s Tariff Turmoil (TTT) than has been widely expected. In other words, the stagflation scenario remains a no-show.
In the bond market, yields continued to decline yesterday in response to May’s lower-than-expected inflation data (chart). Thankfully, the widely feared debt crisis in the US government bond market (most recently predicted by Jamie Dimon, Ray Dalio, and Elon Musk) is also a no-show. Recent Treasury auctions have been well received.
Yields are down again yesterday despite yesterday’s Bloomberg report that “Hong Kong’s pension fund managers have formed a preliminary plan to sell down their Treasury holdings within as soon as three months if the US loses its last recognized top credit rating, according to people familiar with the matter.” That’s either alarming or alarmist. We pick the second choice.
