Standouts From Latest Economic Data Will Drive Rate Cut Decision
The latest economic data offers a clue into Federal Reserve Chair Jerome Powell's upcoming move on interest rates.
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We have received one of the final pieces of economic data ahead of the Fed concludes its latest policy meeting.
Much like Friday’s stronger-than-expected April Employment Report, ISM’s April Service PMI came in at 51.6, nicely ahead of the market forecast of 50.6 and ahead of March’s 50.8 reading.
Two things stand out to us. First, that April print of 51.6 is below the 52.3 average for Q1 2025, indicating the part of the economy that drives 85%-90% is still growing but at a slower pace. No surprise, given what we’ve seen in other data, but the uptick in Services New Orders to 52.3, which is the highest level so far this year, indicates that part of the economy isn’t about to roll over anytime soon.
Second, the Price component inside ISM’s April Service PMI hit 65.1, well ahead of the 61.2 figure the market was looking for and up several points compared to the March reading of 60.9.
Put these figures together along with ISM’s April Manufacturing Report also showing a stiff jump in the Prices component and they reaffirm the view we shared in Monday's Daily Rundown video that Powell will have some sobering talk for the market on Wednesday when it comes to rate cut expectations between the Fed’s June and December meetings. This also means we should expect some hard words from President Trump, but given what we see in the data, we’ll side with Powell and the Fed heads.
Given that probability, as well as the potential for trade deal developments leaving the market a bit wanting, we will continue to stick with the Portfolio’s inverse ETF positions for a bit longer.
