US initial jobless claims rose 14k to 240k in the week ending May 24, above expectation of 230k. Four-week moving average of initial claims fell -250k to 231k.
Continuing claims rose 26k to 1919k in the week ending May 17, highest since November 13, 2021. Four-week moving average of continuing claims rose 3k to 1890k, highest since November 27, 2021.
RBNZ Governor Christian Hawkesby stold Bloomberg TV today that another rate cut at the July meeting is “not a done deal” and “not something that’s programmed.”
With the OCR at 3.25% after this week’s reduction, it’s now sitting within the estimated neutral range of 2.5% to 3.5%. Hawkesby emphasized the central bank has entered a phase of “considered steps,” guided closely by incoming data rather than a preset easing path.
He acknowledged rising uncertainty, noting that near-term growth headwinds have intensified and both demand and inflation pressures are weaker than they were back in February. He also highlighted the uncertainty surrounding global trade policy, particularly tariff developments, which could play out in various ways.
New Zealand’s ANZ Business Confidence index dropped sharply in May, falling from 49.3 to 36.6. Own Activity Outlook, a key indicator of firms’ expectations for their own performance, declined to 34.8 from 47.7.
Profit expectations also plunged to 11.1, indicating mounting pressure on margins. Although cost and wage expectations eased slightly, they remain elevated, while inflation expectations edged up from 2.65% to 2.71%.
According to ANZ, the survey paints a mixed picture: the economy is in recovery mode, but businesses continue to face tough operating conditions, particularly in passing on cost increases. The data reinforces the view that RBNZ can afford to support growth through further rate cuts, barring any major inflation or data surprises.
ANZ expects the OCR to eventually fall to 2.5%, as global headwinds and domestic fragilities persist.
The FOMC minutes from the May 6–7 meeting highlighted growing anxiety among policymakers about the dual threat of persistent inflation and deteriorating growth prospects, largely stemming from US trade policies.
Nearly all participants flagged the risk that inflation could be “more persistent than expected” as the economy adjusts to elevated import tariffs. This situation, they warned, could force the Fed into “difficult tradeoffs” if inflation stays stubborn while growth and employment begin to falter.
The Committee agreed that uncertainty surrounding the economic outlook had “increased further”, justifying a cautious stance on monetary policy, “until the net economic effects of the array of changes to government policies become clearer.”
Fed staff revised their GDP projections lower for 2025 and 2026, citing a larger-than-anticipated drag from recent tariff announcements. Beyond the short-term impact, officials also warned of longer-term structural effects, with trade restrictions likely to slow productivity growth and reduce the economy’s potential “over the next few years.”
The labor market outlook has also darkened, with staff forecasting the unemployment rate to rise above its “natural rate” by year-end and remain elevated through 2027.
Inflation forecast was revised higher, with tariffs seen boosting prices notably in 2025, before gradually easing. Inflation is still expected to return to 2% by 2027, but the path there is now more complicated.
ECB’s latest Consumer Expectations Survey for April showed a modest but notable uptick in short-term inflation expectations.
Median expectations for inflation over the next 12 months rose to 3.1%, the highest since February 2024. However, medium- and long-term inflation expectations remained steady, with the three-year outlook unchanged at 2.5% and the five-year projection holding at 2.1% for the fifth straight month.
Alongside the rise in short-term inflation forecasts, the survey revealed an increase in uncertainty about inflation over the coming year, matching levels last seen in June 2024.
More concerning, however, is the deepening pessimism around growth and employment. Expectations for economic growth over the next 12 months dropped sharply to -1.9% from -1.2% in March. Expected unemployment ticked up slightly from 10.4% to 10.5%.
RBNZ lowered the Official Cash Rate by 25 basis points to 3.25%, in line with market expectations. The decision was not unanimous, passed by a 5-1 vote.
The central bank emphasized that inflation is now within the target band and is “well placed” to respond to both domestic and international developments.
Meeting minutes revealed that some committee members favored holding the rate steady at 3.50%, citing a desire to monitor elevated global uncertainty and potential inflation risks stemming from recent tariff increases.
Maintaining the OCR, they argued, could have helped anchor inflation expectations more firmly around the 2% midpoint.
In its accompanying Monetary Policy Statement, RBNZ revised down its rate path projections slightly. The OCR is now expected to fall to 3.12% by September 2025 (previously 3.23%), and to 2.87% by June 2026 (previously 3.10%).
Australia’s monthly CPI held steady at 2.4% yoy in April, slightly above expectations of 2.3% yoy, marking the third consecutive month of unchanged headline inflation.
However, underlying inflation measures moved higher, with CPI excluding volatile items and holiday travel rising to 2.8% yoy from 2.6% yoy. Trimmed mean CPI also tickd up from 2.7% yoy to 2.8% yoy.
These developments suggest that while headline inflation appears stable, price pressures beneath the surface remain persistent.
Key contributors to the annual inflation rate included food and non-alcoholic beverages (+3.1%), recreation and culture (+3.6%), and housing (+2.2%).
BoJ Governor Kazuo Ueda told parliament today that shifts in short- and medium-term interest rates have a more pronounced impact on economic activity than movements in super-long yields.
He explained that corporate and household debt is more concentrated in those shorter maturities, making the economy more sensitive to changes in that segment of the yield curve.
However, Ueda also acknowledged the spillover effects of volatility in super-long bond yields, noting that sharp moves in that part of the curve can ripple through to shorter maturities and influence overall financial conditions.
“We’ll carefully watch market developments and their impact on the economy, he emphasized.
New York Fed President John Williams emphasized the importance of acting decisively to prevent inflation from becoming entrenched, warning that delayed responses risk making price pressures permanent.
Speaking at a conference in Tokyo, Williams noted, “you want to avoid inflation becoming highly persistent because that could become permanent”.
“And the way to do that is to respond relatively strongly” when inflation begins to deviate from target.
He also highlighted the sensitivity of inflation expectations, cautioning that any significant shift could be “detrimental” to economic stability.
US Conference Board index jumped from 85.7 to 98.0 in May, far exceeding expectations of 87.1 and marking the first increase in six months. Present Situation Index rose 1.8 pts to 135.9. Expectations Index leapt by 17.4 points to 72.8.
Despite the rebound, the expectations component remains below the key threshold of 80, which historically signals elevated recession risk in the months ahead.
The improvement gained traction after the May 12 announcement of a partial pause on US-China tariffs, though the Conference Board noted the rebound had already begun beforehand.
According to Senior Economist Stephanie Guichard, the uptick was “largely driven by consumer expectations as all three components of the Expectations Index—business conditions, employment prospects, and future income”.
US durable goods orders fell sharply by -6.3% mom in April to USD 296.3B, driven primarily by a steep -17.1% mom drop in transportation equipment. The headline decline, while severe, was less than the expected -8.0%.
Orders excluding defense also posted a significant decline of -7.5% mom to USD 279.3B.
However, the underlying picture was somewhat more stable. Orders excluding the often-volatile transportation component rose by 0.2% mom to USD 197.5B, beating expectations of a flat reading.
This suggests that while large-ticket and defense-related items dragged the headline figure lower, private sector investment in capital goods is holding up better than feared.
Austrian ECB Governing Council member Robert Holzmann cautioned against further rate cuts in the near term, citing heightened uncertainty from the US-EU trade conflict and a belief that monetary policy is no longer the main drag on economic activity.
Arguing that “moving further south would be more risky than staying where we are,” Holzmann said there is no justification for easing in June or July and suggested waiting until at least September before reassessing the need for further action.
Holzmann also pointed to a notable rise in estimates of the neutral interest rate since early 2022, stating that ECB’s current policy stance is already “at least at the neutral level.”
In his view, lower rates would provide little economic benefit, as lingering uncertainty, not borrowing costs, is the key factor suppressing growth.
Speaking at the IMES conference in Japan, Minneapolis Fed President Neel Kashkari addressed the growing internal debate within Fed over how to respond to the inflationary effects of new US tariffs.
He noted that some policymakers advocate “looking through” these price shocks, viewing them as “transitory”, akin to a one-time upward shift in the price level rather than persistent inflation. That approach would favor cutting interest rates to support economic activity during the adjustment period.
However, Kashkari expressed skepticism toward this lenient view. He emphasized that trade negotiations are “unlikely to be resolved quickly”., warning of a prolonged period of elevated uncertainty and the risk of retaliatory measures.
Tariffs on intermediate goods could lead to delayed but persistent inflationary pressure as cost increases pass through to final goods over time.
Given these risks, Kashkari said he finds the case for holding rates steady more persuasive, especially in light of the need on “defending long-run inflation expectations”.
While current policy is likely “only modestly restrictive”, he argued that caution is warranted until the full effects of tariffs become clearer.
Comments from ECB Governing Council members today reinforced expectations for a rate cut in June, as inflation continues to moderate across the Eurozone.
French central bank chief François Villeroy de Galhau noted that policy normalization is “probably not complete,” and hinted that the upcoming ECB meeting is likely to deliver further action. He pointed to France’s May inflation reading of just 0.6% as a “very encouraging sign of disinflation in action”
Separately, Lithuania’s Gediminas Šimkus struck a dovish tone, stating that the balance of inflation risks has shifted to the downside, citing trade frictions with the US and a stronger Euro as deflationary forces. He added that current borrowing costs sit at the upper bound of the neutral range, leaving room for more rate reductions.
In his remarks at the BoJ-IMES Conference, BoJ Governor Kazuo Ueda highlighted a fresh wave of price pressures, particularly from food, has emerged in Japan recently. Rice prices nearly doubling year-on-year and broader non-fresh food categories climbing 7%.
While BoJ expects the latest food-driven inflation spike to be transitory, Ueda acknowledged that underlying inflation now hovers closer to the 2% mark than in previous years, warranting heightened vigilance.
BoJ retains its baseline scenario that underlying inflation will gradually return to the 2% target over time. However, given the evolving backdrop of supply-driven shocks and heightened global uncertainty, Ueda reiterated that any adjustment in the degree of monetary easing will hinge on incoming data.
“Considering the extremely high uncertainties, it is important for us to judge whether the outlook will be realized, without any preconceptions,” Ueda emphasized.
Japan’s gross external assets soared to a record JPY 533.05T in 2024, marking a 12.9% increase from the previous year. This seventh consecutive annual rise was driven by a combination of Yen depreciation and continued outbound investment activity, especially in mergers and acquisitions.
The Japanese government, businesses, and individuals collectively benefited from currency effects, as Dollar and Euro appreciated by 11.7% and 5% respectively against Yen, inflating the yen-denominated value of overseas holdings.
Nevertheless, for the first time in 34 years, Germany overtook Japan with external assets totaling JPY 569.65T. China followed closely behind Japan with JPY 516.28T.
While Yen’s depreciation offered valuation support, Japan’s position was undercut by Germany’s structurally stronger current account surplus.
ECB President Christine Lagarde said in a speech today that the global economic order is “fracturing”, as multilateralism gives way to bilateral power struggles and protectionism. She highlighted that even Dollar’s dominant role in the global financial system is no longer assured
Lagarde cautioned that this fragmentation poses serious risks for Europe’s economic security and resilience. However, she emphasized that these challenges could be turned into opportunities if Europe adopts the right policy responses, especially when it comes to expanding the “international role” of the Euro.
As the second-most widely held currency, accounting for roughly 20% of global FX reserves compared to Dollar’s 58%, Euro is well positioned to take on a greater global role.
Doing so would bring tangible benefits: lower borrowing costs for EU governments and businesses, reduced vulnerability to FX swings, and greater insulation from external financial coercion or sanctions.
Minneapolis Fed President Neel Kashkari warned today that major shifts in US trade policies are clouding the outlook for monetary policy, making it difficult for the Fed to move on interest rates before September.
While “anything is possible,” Kashkari said in an interview with Bloomberg TV, he’s unsure whether the picture will be “clear enough” by then. Much hinges, he added, on whether trade negotiations between the US and its partners yield concrete deals in the coming months, which could “provide a lot of the clarity we are looking for.”
The uncertainty, Kashkari explained, is weighing on economic activity. He emphasized the stagflationary nature of the tariff shock, noting that its impact will depend on both the scale and duration of the levies.
On financial markets, Kashkari acknowledged that rising US Treasury yields might reflect a broader reassessment by global investors about the risks of holding American assets. He suggested that the current bond market reaction could signal a new global paradigm.
Chicago Fed President Austan Goolsbee emphasized a cautious stance on monetary policy, citing the high level of uncertainty surrounding the economic outlook.
Speaking on CNBC, Goolsbee said “everything’s always on the table,” but that the bar for further action is “a little higher” until more clarity emerges.
He flagged the stagflationary effects of trade policy shifts as a key concern, calling such an environment “the central bank’s worst situation,” and adding that policymakers will need to closely assess how much tariffs push prices higher.
While markets are pricing in two Fed cuts this year, likely starting in September Goolsbee avoided committing to any timeline.
He stressed the need for flexibility, saying, “I don’t like even mildly tying our hands at the next meeting.” Still, he maintained that, heading into April 2, inflation appeared to be easing and the labor market was stable, conditions under which interest rates could “come down a fair amount” over the next 12 to 18 months.
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BoE’s Bailey stresses caution on rate cuts amid inflation surprises and trade uncertainty
BoE Governor Andrew Bailey emphasized the need for a “gradual and careful” approach to future interest rate cuts in light of lingering global trade uncertainty and its impact on domestic inflation.
His comments follow last week’s stronger-than-expected inflation data, which showed UK CPI jumping to 3.5% in April from 2.6%. Bailey noted it remains unclear how much of the increase is due to seasonal factors, and said the BoE will closely examine the next set of inflation data ahead of its June policy decision.
Bailey acknowledged that while core inflation is “gradually grinding down”, the pace of improvement remains sluggish. He also highlighted a renewed rise in food price inflation, which—although not unique to the UK—has a significant influence on public inflation perceptions.