Weekly Economic & Financial Commentary: Will Tighter Financial Conditions Lead to a More Dovish Fed?

Summary

United States: Don’t Look Down Yet

• Consumer price inflation may have peaked, but the climb down from here will not be free of obstacles. The CPI and PPI rose 0.3% and 0.5%, respectively, in April. Small business optimism stalled during the month, as owners are concerned about their ability to continue to pass on higher costs to consumers.
• Next week: Retail Sales (Tues), Industrial Production (Tues), Housing Starts (Wed)

International: Inflation Plague Continues in Emerging Markets

• Price growth is a global problem; however, inflation seems to be more of a problem across the emerging markets. With commodity prices still high and weak local currencies, most emerging market countries are experiencing above-target inflation.
• Next week: UK CPI (Wed), Japan CPI (Thurs), South Africa Reserve Bank (Fri)

Interest Rate Watch: Will Tighter Financial Conditions Lead to a More Dovish Fed?

• In the post-FOMC meeting press conference last week, Chair Powell indicated that financial conditions would need to tighten to help the Fed restore price stability. The Bloomberg Financial Conditions Index began to tighten early this year when FOMC members signaled that the committee would become more aggressive in battling inflation. This week, conditions tightened further to the least-supportive posture in two years.

Credit Market Insights: Consumer Credit Overdelivers for a Second Month

• Consumer credit grew by a record $52.4B in March as it more than doubled consensus estimates for the second month running. The surge was relatively well-balanced, with revolving credit—mostly linked to credit card spending—rising $31.4B, while nonrevolving credit climbed a slightly lower $21.4B.

Topic of the Week: Fertilizer Crunch Threatens to Drive Food Prices Higher

• Rising food prices continued to sting consumers in April as grocery prices and prices for food away from home rose 1.0% and 0.6%, respectively. A global supply shortage of chemical fertilizers may put further pressure on already strained food commodity markets.

Full report here.