Summary
United States: Tariff Headwinds Meet Productivity Tailwinds
- It was a quiet week on the economic indicator calendar, allowing analysts to continue to digest the array of data released last week that provided unambiguous signs of demand materially slowing. Solid labor productivity remains a bright spot, but slowing activity and broadening price pressures in the service sector point to mild stagflation.
- Next week: Consumer Price Index (Tue.), Retail Sales (Fri.), Industrial Production (Fri.)
International: Mixed Data from Foreign Economies Amid Global Uncertainties
- This week, central banks across the U.K., India and Mexico made cautious policy decisions. The Bank of England and Banxico cut rates, while the Reserve Bank of India held steady amid currency stability concerns. Switzerland saw a surprise rise in inflation, and Mexico’s core inflation remained sticky despite headline easing. And finally, down under, soft labor market data in New Zealand supports expectations for a rate cut.
- Next week: Reserve Bank of Australia Policy Rate (Tue.), Norges Bank Policy Rate (Thu.), China Industrial Production and Retail Sales (Fri.)
Interest Rate Watch: For (Term) Premium Subscribers
- In this week’s Interest Rate Watch section, we discuss the outlook for the neutral rate and term premiums in the context of the fair value for the 10-year Treasury yield. If we add our estimate of the overnight rate to current estimates of the 10-year term premium, we get a long-run, fair value estimate of the 10-year Treasury yield around 4%, not too far from the current spot rate.
Topic of the Week: Duty Calls
- In a recent escalation of trade policy, the Trump administration announced updated reciprocal tariffs ranging from 10% to 41% on goods from over 60 countries. The overall macroeconomic effect remains uncertain, and while the updated tariffs offer some clarity and stability in the short term, significant uncertainties remain.
