This morning’s release of April’s personal income did not set off any alarms. The PCE monthly percent change for April from one year ago was the lowest since December of 2016 and when food and energy are excluded, even longer. On Friday, we saw the second estimate of first quarter GDP was increased from the advance estimate of 0.7% to 1.2% and on that same day the Durable Goods report was in the same insignificant tenor. All seemingly innocuous and tame but not enough to keep a rate hike from occurring. The Fed is committed to normalizing rates but it may come at a cost.
This morning’s LSS Fixed Income Report has a short summary of what could happen if the Fed pays little heed to the long end of the curve and proceeds with a Sherman-like march to higher short term rates. No one knows for sure, but as the rhetoric of growth becomes more hope than reality, officials would be wise to keep at least one eye on something other than the unemployment rate.
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