Wall Street widely expects the Fed to hike its benchmark rate +25 basis-points, bringing the target rate to 5.0-5.25%. For what it's worth, it's been 16 years since the Fed funds rate has topped 5%. This also marks the median year-end range indicated by the Fed's last "dot plot," meaning this is where officials believed the Fed funds rate would be at the end of 2023.
Investors are somewhat divided as to whether the Fed will hold rates steady from here and will be listening closely to any comments Powell makes in regard to upcoming policy moves. Investors will also be looking for growing signs of dissent among Fed officials over whether to keep hiking rates higher, take a pause, or start cutting.
The vote to lift rates by 25 basis-points at the March 22 meeting was unanimous. Since then, however, several officials have publicly supported pausing rate hikes as soon as this meeting while others have raised the possibility of more hikes ahead. If today's decision has some dissenters, investors will view that as a sign that a pause in June is likely. While it's possible that Powell could outright say the Fed plans to pause at the June meeting, most think that is highly unlikely. Instead, he'll probably stick to the script that policy decisions will remain "data dependent."
Wall Street insiders currently seem to be giving about 80% odds of "no rate" hike or cut at the Fed's next meeting in June. I should however note, the odds of a rate cut are actually higher than the odds of another rate hike at the June meeting. In fact, if we look a bit further out, Wall Street insiders are still thinking there will be two or perhaps three rate cuts by year end.
Bulls yesterday were pointing to the Job Openings and Labor Turnover Survey (JOLTS) that showed the number of unfilled jobs fell to 9.59 million in March, down from 9.9 million in February and the lowest number since May 2021. It also showed a nearly +250,000 jump in layoffs. There were actually +3.8 million more job openings than unemployed workers in March, which is down from the all time high of +6.1 million more job openings than unemployed workers that happened back in March 2022.
In case you are wondering, in February of 2020, just before the covid pandemic, there were +1.3 million more job openings than unemployed. Keep in mind, this is one of the last pieces of employment data the Fed gets to look at ahead of its decision today and bulls believe it makes a convincing case that the job market is cooling.
Some even see the surprisingly large pullback in job openings as confirmation that the US economy is headed toward recession. Another important read for the Fed might be today's ISM Services Index, a sector the Fed has singled out as an inflation contributor. The "Prices Paid" component fell substantially last month and a repeat would be another welcome sign that inflation is moderating. Sticky services inflation has been behind "core" inflation reads coming in higher than headline rates in the CPI and PCE Prices data.
Today also brings ADP's private employment report for April with analysts expecting around +143,000 jobs added.
The official April Employment Report on Friday is expected to show a gain of +178,000. Turning to earnings, top highlights today include Allstate, Corteva, CVS, Etsy, Kraft Heinz, Marathon Oil, Mosaic, Phillips 66, Qualcomm, and Yum Brands.
Bidding Wars Are Back in the Housing Market: After cooling for the better part of last year, home prices are on the rise again. A sharp drop in new listings, adding to an already meager supply of homes for sale, is leading to renewed bidding wars and more homes selling for above asking price. Roughly 30% fewer new listings came on the market in March compared with pre-pandemic norms. The deficit of homes for sale continues to grow, as fewer potential sellers want to list their homes in today’s higher mortgage-rate environment. This comes in the heart of the spring housing market when demand is historically highest. Competition among buyers is not only pushing prices higher in many areas but also accelerating the overall market again. Nearly half of the homes on the market are selling within two weeks, the highest share in nearly a year, according to Redfin, a real estate brokerage. Source CNBC
Why Gas Prices Could Start to Pullback Heading Into Summer: The annual switch to a pricier variety of gas known as summer blend is almost complete, meaning prices at the pump are likely peaking and could fall before beach season begins. Summer blend fuel, a higher grade of gas, can add up to +15 cents per gallon in the spring, according to NACS, the trade organization for fuel and convenience stores. That's in addition to price increases that come with seasonal demand, which can vary from +5 to +15 cents per gallon. Since 2020, gas prices have increased seasonally by about +50 cents from a low at the beginning of February to the seasonal high in May. Over the last 10 years, the average date summer gas prices have peaked nationally has been May 2, so we might soon start to see prices ease a bit at the pump. Another thing that might lower fuel prices is the slowdown in demand. According to Opis, which tracks activity across 40,000 stations nationwide, volumes sold in the week to April 22 were down about -3% vs. the same week last year, -6% vs. the same week two years ago and -20% vs. the same week in 2019, before the coronavirus pandemic hit. I should also note, demand for distillates including diesel, which is used to power the trucks and trains that transport goods around the country, was about -6% lower in the first quarter of 2023 compared with the same period last year. Source Axios and Financial Times
IBM Will Stop Hiring Humans For Jobs AI Can Do: Technology giant IBM plans to stop hiring people to fill thousands of roles in the coming years that the company believes artificial intelligence can handle. CEO Arvind Krishna said in an interview he believes around 30% of about 26,000 non-customer-facing positions, like human resources jobs, could be replaced by AI over a five-year period, amounting to about 7,800 lost jobs. Predictions of a future where robots widely replace human workers have long existed, but the recent emergence of AI programs like ChatGPT has prompted concerns that societal reckoning with AI’s role in the world may be imminent or already underway. Source Forbes
Poor Leadership, Economy, and Inflation Top Americans' Concerns: More Americans continue to name government leadership more than any other issue as the most important problem facing the country, with various aspects of U.S. leadership mentioned by 18% of adults in April. The economy in general ranks second, at 14%, while all other problems are cited by less than 10%. These include the high cost of living or inflation (9%), immigration (8%) and guns or gun control (7%). The percentages of Americans citing guns or lack of gun control (7%) and crime or violence (6%) as the top problem are the highest Gallup has recorded since last June. These are up from 1% and 3%, respectively, in March. Meanwhile, there has been no change in the “government” category of responses. This grouping, which includes criticisms of Congress, the sitting president, the political parties, political divisiveness and political inaction, among others, has consistently ranked at or near the top of Gallup’s Most Important Problem list for more than a decade. Interestingly, net mentions of economic issues as the most important problem dipped four points to 29%, the lowest since January 2022
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Las Vegas Skyscraper to Finally Open as Luxury Resort This Year: A soaring blue-glass tower that has sat empty for more than a decade on the Las Vegas Strip — through the Great Recession and an unprecedented pandemic that shut down the famed tourist corridor for months — is set to open its doors to the public in December as the gambling center’s latest resort and casino. Company executives for Fontainebleau Las Vegas made the announcement Tuesday morning, more than a year after the company publicly set a goal to open before the end of 2023. The announcement marked the beginning of hiring efforts for a 3,700-room resort and casino that is expected to create thousands of jobs. Named after Miami Beach’s 1950s-era Fontainebleau hotel, the luxury resort is one of the tallest buildings in Las Vegas. Construction on the 67-story Fontainebleau Las Vegas began in 2007 amid the U.S. real estate bubble and was expected at the time to open in October 2009. Source Fortune
Is Corporate Greed Driving Inflation? In the three years before covid-19 rich-world consumer prices rose by a total of +6%. In the three years since then they have risen by close to +20%. People are looking for someone to blame—and corporations are often top of the list. According to a recent survey by Morning Consult, some 35% of Americans believe that “companies’ attempts to maximize profits” have contributed “the most” to inflation, more than any other factor by far. The problem is that, at an aggregate level, evidence for corporate greed is thin. What actually seems to be happening is that families and businesses are sharing the spoils of the post-pandemic economy. Labor has had the upper hand for most of the past three years, though more recently its share has fallen. In 2020 firms continued to pay people’s wages—helped by stimulus programs—even as GDP dropped. In 2021 and 2022 strong demand for labor allowed many existing workers to demand more pay. It also pulled new people into the workforce. The chart below shows recent changes in the price of an average American good or service, split into the relative contributions of profits and labor costs. Corporations had the early spoils, but since 2021 labor costs have taken a greater share. Source The Economist
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