Federal Reserve speakers yesterday emphasized that the current fed funds rate is restrictive and is likely to continue to support disinflation, but more evidence is needed that price pressures are easing in a sustainable manner before the central bank lowers rates.<\/p>\n\n\n\n
Fed Board Governor Michael Barr said he believes the economy is performing strongly with solid growth and low unemployment. He reiterated a conclusion from the central bank\u2019s last meeting\u2014Fed members need more data showing that inflation progress is sustainable before cutting the fed funds rate. He believes the Fed needs to allow the current restrictive monetary policy to have more time to tame inflation.<\/p>\n\n\n\n
Barr also said the Fed is considering requiring all large banks to report unrealized losses on capital. Currently, only the largest banks are required to do so. By expanding the requirement to additional banks, reporting would better reflect interest rate risks. The Fed is also considering increasing liquidity requirements to improve banks\u2019 ability to deal with funding shocks. Another proposal involves limiting banks\u2019 use of held-to-maturity assets within liquidity buffers. The Fed, meanwhile, is reviewing public comments on various proposals, including requiring banks to issue more long-term debt that could be used when bank failures are resolved.<\/p>\n\n\n\n
Fed Vice Chair Philip Jefferson said he believes monetary policy is sufficiently restrictive and that the economy is still strong. He acknowledged that the first-quarter GDP growth rate of 1.6% was a deceleration from 3.4% in the fourth, but private domestic final purchases were still strong. The metric excludes inventory investment, government spending and net exports. Jefferson believes it is a clear signal of underlying demand. It grew 3.1% in the first quarter, which was comparable to the second half of last year. Meanwhile, labor demand and supply have moved closer to being balanced, a result of the labor participation rate for individuals aged 25 to 54 exceeding levels that existed prior to the pandemic, which has contributed to a moderation in wage pressures. Disinflation and the loosening of the labor market imply that the Fed\u2019s monetary policy is adequately restrictive. Going forward, consumer spending is likely to weaken as the Fed\u2019s restrictive monetary policy weighs on demand. Regarding inflation, he explained that the Fed estimates Personal Consumption Expenditures prices rose at an annual rate of 4.1% during the first four months of this year. He said it\u2019s too early to tell if the slowing pace of disinflation will be long-lasting.<\/p>\n\n\n\n
Also yesterday, Cleveland Fed President Loretta Mester told Bloomberg Television that she believes monetary policy is restrictive. She echoed concerns of other policymakers, however, by saying the Fed needs more data showing easing inflation before cutting interest rates. She had previously believed three rate cuts would be appropriate this year, but after seeing higher inflation during the first quarter, she no longer believes that is appropriate. In the meantime, she expects the current fed funds interest rate to continue to bring inflation down.<\/p>\n\n\n\n
In a Bloomberg interview yesterday, Atlanta Fed President Raphael Bostic said he believes that interest rates could remain higher for some time than they were in the past decade as inflation declines at a slow pace. He anticipates a continued decline in inflation through this year and into 2025 and he continues to expect that the central bank will cut rates only once this year, but not until the final quarter. Based on conversations with business leaders, it appears the economy is slowing and corporations\u2019 pricing power is weakening. Bostic said the question of when the Fed becomes comfortable that it is on a sustainable path of 2% inflation is more important than how many rate cuts may occur next year.<\/p>\n\n\n\n
During the Third Conference on the International Roles of the US Dollar yesterday, Fed Board Governor Christopher J. Waller said the US dollar is still the primary global currency, but its role may evolve as world economies change. The Fed and other researchers are continuing to study the topic. For example, a paper to be presented by Linda Goldberg of the New York Federal Reserve Bank, found that financial sanctions and geopolitical distance from the United States are associated with lower dollar shares in foreign exchange reserves. In another paper presented by Ryan Chahrour, the prolonged use of sanctions and policies intended to promote the use of other currencies, such as the renminbi, could reduce the global prominence of the US dollar. In another study, the availability of the US dollar in central bank swap lines helps ensure that credit flows to households and businesses while enhancing stability, which in turn protects the global dominance of the dollar. In a presentation this morning, Waller said weak results from the Institute for Supply Management’s survey of purchasing managers and a slowdown in retail spending point to the Fed\u2019s policy being restrictive. He added that wage growth is higher than what is required to bring inflation to the central bank\u2019s 2% goal.<\/p>\n\n\n\n
BoE Deputy Governor Anticipates Summer Rate Cut<\/strong><\/h2>\n\n\n\nIn the UK, at least one member of the Bank of England is optimistic that the organization may cut its Bank Rate this summer. Yesterday, Deputy Governor Ben Broadbent said a summer rate cut is possible depending on how quickly wages grow and price increases ease. Business surveys show that wage pressure, which is a major driver of inflation, is likely to ease but only slowly. On a positive note, wage increases have exceeded price gains, helping households improve their spending clout.<\/p>\n\n\n\n
Consumer Spending Weakens While Enterprise Tech Growth Falters<\/strong><\/h2>\n\n\n\nConsumer spending during the recent quarter was sluggish, at best, while enterprise tech vendors produced mediocre results. In the travel industry, at least one airline is bracing for softening demand in Europe. Consider the following earnings highlights:<\/p>\n\n\n\n
\n- Macy\u2019s first-quarter earnings surpassed Wall Street expectations, but revenue fell short of forecasts and declined 3% year over year (y\/y) with weak sales at its namesake stores and internet channel. The company maintains its strategy of adding store employees and improving how merchandise is presented has helped results and it upgraded its full-year guidance. Despite the guidance increase, Macy\u2019s believes \u201ccustomers will continue to be discerning in their discretionary purchases,\u201d according to a press release. Earlier this year, the company announced it would close 2,300 Macy\u2019s stores and focus on better performing locations. Macy\u2019s share price gained approximately 3% in early trading.<\/li>\n\n\n\n
- Lowe\u2019s said first-quarter revenue declined from $22.35 billion in the year-ago quarter to $21.36 billion. Despite the decline, both revenue and earnings exceeded analyst consensus expectations. Lowe\u2019s attributed the revenue decline primarily to do-it-yourself customers cutting back on buying more expensive items. It expects full-year comparable sales, a metric that excludes new stores, to decline 2% to 3% relative to 2023.<\/li>\n\n\n\n
- Palo Alto Networks, which provides internet security technology, beat earnings and revenue expectations for its fiscal third quarter. However, it provided weaker-than-expected revenue and billing guidance for the current quarter which runs through July. Shares initially declined approximately 10% after the earnings release last night. Chief Financial Officer Dipak Golechha maintains that subscription growth has been stronger than expected and that volatility in the company\u2019s revenue and billing guidance was driven, in part, by payment terms. The company expects its revenue to strengthen during the second half of this year.<\/li>\n\n\n\n
- Zoom reported a fiscal first-quarter y\/y sales increase of 3.2% with revenue and earnings exceeding analysts\u2019 expectations. Zoom has been expanding its product lineup to include call center services and artificial intelligence. It experienced a small increase in consumer churn due to it implementing new late payment rules while its number of enterprise clients also declined.<\/li>\n\n\n\n
- Ryanair, a Dublin-based airline, said its fare increase and large traffic volume helped it offset a 24% y\/y jump in operating costs with jet fuel expenses 32% higher for its full fiscal year. For the fiscal year ending next March, the company anticipates an 8% growth in passenger traffic volume and will add 200 new routes. CEO Michael O\u2019Leary, however, says Europe has a recessionary feel and is experiencing weak consumer sentiment that will likely lead to softer prices this summer.<\/li>\n<\/ul>\n\n\n\n
Sidelined Investors Result in Flat-Line Trading<\/strong><\/h2>\n\n\n\n
Consumer spending during the recent quarter was sluggish, at best, while enterprise tech vendors produced mediocre results. In the travel industry, at least one airline is bracing for softening demand in Europe. Consider the following earnings highlights:<\/p>\n\n\n\n
- \n
- Macy\u2019s first-quarter earnings surpassed Wall Street expectations, but revenue fell short of forecasts and declined 3% year over year (y\/y) with weak sales at its namesake stores and internet channel. The company maintains its strategy of adding store employees and improving how merchandise is presented has helped results and it upgraded its full-year guidance. Despite the guidance increase, Macy\u2019s believes \u201ccustomers will continue to be discerning in their discretionary purchases,\u201d according to a press release. Earlier this year, the company announced it would close 2,300 Macy\u2019s stores and focus on better performing locations. Macy\u2019s share price gained approximately 3% in early trading.<\/li>\n\n\n\n
- Lowe\u2019s said first-quarter revenue declined from $22.35 billion in the year-ago quarter to $21.36 billion. Despite the decline, both revenue and earnings exceeded analyst consensus expectations. Lowe\u2019s attributed the revenue decline primarily to do-it-yourself customers cutting back on buying more expensive items. It expects full-year comparable sales, a metric that excludes new stores, to decline 2% to 3% relative to 2023.<\/li>\n\n\n\n
- Palo Alto Networks, which provides internet security technology, beat earnings and revenue expectations for its fiscal third quarter. However, it provided weaker-than-expected revenue and billing guidance for the current quarter which runs through July. Shares initially declined approximately 10% after the earnings release last night. Chief Financial Officer Dipak Golechha maintains that subscription growth has been stronger than expected and that volatility in the company\u2019s revenue and billing guidance was driven, in part, by payment terms. The company expects its revenue to strengthen during the second half of this year.<\/li>\n\n\n\n
- Zoom reported a fiscal first-quarter y\/y sales increase of 3.2% with revenue and earnings exceeding analysts\u2019 expectations. Zoom has been expanding its product lineup to include call center services and artificial intelligence. It experienced a small increase in consumer churn due to it implementing new late payment rules while its number of enterprise clients also declined.<\/li>\n\n\n\n
- Ryanair, a Dublin-based airline, said its fare increase and large traffic volume helped it offset a 24% y\/y jump in operating costs with jet fuel expenses 32% higher for its full fiscal year. For the fiscal year ending next March, the company anticipates an 8% growth in passenger traffic volume and will add 200 new routes. CEO Michael O\u2019Leary, however, says Europe has a recessionary feel and is experiencing weak consumer sentiment that will likely lead to softer prices this summer.<\/li>\n<\/ul>\n\n\n\n
Sidelined Investors Result in Flat-Line Trading<\/strong><\/h2>\n\n\n\n
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