Weekly Update 06/27/2025: Powell Signals No Change for Fed
- Amgen drug results underwhelming
- General Mills reports earnings
- Consumer spending drops
Home sales
This week data was released on both existing and new homes sales. According to the National Association of Realtors (NAR), previously owned home sales rose slightly in May by 0.8% to an annualized rate of 4.03 million in a report released on Monday. That was just the second increase this year and was above the 3.95 million median estimate in a Bloomberg survey of economists. Existing home sales comprise about 90% of the residential market. “The relatively subdued sales are largely due to persistently high mortgage rates,” said NAR Chief Economist Lawrence Yun in a statement. Assuming the Fed does not act (more on that later), it is likely that mortgage rates will hover around 7% for the next few months at least. With many homeowners holding sub 5% mortgages, the difference between current rates and what was signed often years ago is still too large. Getting a new mortgage would result in hundreds of dollars extra paid per month if a homeowner moved to an abode in a similar price range. Even higher supply has so far failed to reduce prices. The median sales price rose 1.3% from a year ago to $422,800, the highest for any May on record. NAR reports that prices are up 51% from the start of the pandemic five years ago. First-time buyers made up 30% of closings last month suggesting that they are having a hard time coming up with funds for the down payment.
Meanwhile, on Wednesday, new home sales data from the Commerce Department for May show they suffered their biggest drop since 2022. New single-family homes declined nearly 14% to a 623,000 annualized rate. New home sales, which make up about 10% of the housing market, are viewed as a timelier indicator of the health of the housing market because results are tabulated at the time of sale versus existing home totals which are summed when the transaction closes, which could be weeks or months later. Like the data on previously-owned homes, the median sales price for new homes also rose. The price increased 3% from a year ago to $426,600 last month, marking the first year-over-year price gain in calendar 2025. More limited inventory in the resale market has boosted prices. The South, the biggest homebuilding region in the country, fell 21%, the most in nearly 12 years. Only the Northeast saw an increase in contract signings as the West and Midwest also fell. When polled, homebuilders expressed their lowest level of confidence in the industry since December 2022.
Personal consumption expenditures
The Commerce Department reported that the third and final reading of first quarter GDP was revised down to a -0.5% annualized rate from the previous reading of a -0.2% pace. The U.S. trade deficit unexpectedly widened in May on the biggest drop in exports since the pandemic thanks primarily to a sharp decline in industrial supplies such as crude oil while imports were little changed from the month prior. Meanwhile, continuing claims for unemployment rose to the highest level since November 2021 in the week ended June 14 according to the Labor Department. This was offset by initial jobless claims dropping by 10,000 in the week ending June 21. Those data points set the stage for the release of the Fed’s preferred measure of inflation, the personal consumption expenditure (PCE) index, which was released for May this morning. The Bureau of Economic Analysis data showed that the price index rose 2.3% on an annual basis. Excluding food and energy (so-called core PCE), the metric rose 2.7%, slightly higher than forecasts. Supercore PCE inflation—core services excluding housing—ticked higher by 0.1% versus 0.0% in the prior month. On one- and six-month annualized bases, core PCE rose to 2.2% and 2.9%, respectively versus 1.6% and 2.8%, respectively, in the prior month.
Personal spending fell by 0.1% in May from April, which was less than the 0.1% rise expected in a survey of economists by Bloomberg. Unpredictable trade policy has muted spending thanks to a decline in consumer sentiment this year. Spending declined on transportation services, meals eaten out and financial services. A category called “other services” which includes net foreign travel also declined reflecting increased pressure on tourism as the summer months arrive. Personal income fell by 0.4%, well below the 0.3% figure expected by the consensus, and quite a reversal from the 0.7% figure posted in April. That was the biggest drop in income since 2021. The personal savings rate contracted to 4.5% from 4.9% because aggregate income fell faster than aggregate spending. According to the Bloomberg Economics group: “The May personal income and outlays report paints a more stagflationary picture than most forecasters anticipated…We’ve long expected consumer spending to retrench as firms try to pass along the cost of tariffs. The May personal income and outlays report shows consumers becoming more discerning in their spending, pulling back in discretionary and interest-sensitive categories.”
Powell on the Hill
Federal Reserve Chairman Jerome Powell was on Capitol Hill this week testifying before Congress as is required by law to give representatives and the public his thoughts on monetary policy and the economy in general. After reporting on Federal Open Market Committee meetings and speeches at various events, regular readers of our newsletter will not be surprised to read that he did not have anything especially novel to report. He said the Fed’s current range for federal funds is appropriate given the state of the labor market and based on inflation readings (he did not have the latest PCE during his testimony which took place earlier in the week). He did not want to comment specifically on the chances of a rate cut at an upcoming meeting because he had to gather feedback from the other governors. He did highlight that the June and July inflation figures would be particularly important because any import duties would begin to show up in the data by then with April and May being too soon. “The effects of tariffs will depend, among other things, on their ultimate level,” Powell said Tuesday in remarks before a congressional panel. “For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.”
Concerning deficits, he reiterated that the U.S. is on an unsustainable path for borrowing but there was no way to know when exactly the tipping point is for the debt burden to be overwhelming. The shift in immigration policy has reduced growth in the US labor force, though demand for workers has also been coming down, he surmised. In his testimony, Powell commented that the job market was not “crying out for a rate cut.” As usual, he tried to be as apolitical as possible because the bottom line is the Fed chair must focus on its mandate. By now, he knows he will be criticized by one group or the other, and it looks like it really does not bother him.
Next Thursday (markets are closed for Independence Day next Friday), we will get the latest monthly employment report from the Department of Labor. The Bureau of Labor Statistics will release the latest consumer price index on July 15. Those dates will be circled on the calendar because the next Federal Open Market Committee meeting takes place on July 30. According to futures markets, after today’s release of PCE data, the chance of a July rate cut is only around 20%. Meanwhile the odds of a September move are over 90%. This suggests that between now and then, data will clearly show that inflation remains under control, but the labor market is deteriorating. That is the only way the Fed is going to lower rates. With the 90-day pause from the administration’s “Liberation Day” tariffs expiring on July 9 and negotiations on the Big, Beautiful Bill aiming for a July 4th conclusion, the path forward will become increasingly clear. If levies come into effect shortly near the levels proposed back in early April, it will be unquestionably viewed as a tax on consumers and, thus, inflationary. That will reduce the chances of a Fed cut. If the bill on Capitol Hill passes without angering the bond vigilantes and tariffs get established and finalized at a level not too far from current levels, that might also reduce the need for a Fed cut. Why? Because businesses, which have been hamstrung by uncertainty, may loosen the purse strings on spending leading to an increase in hiring and investment now that the next several quarters have some certitude around them. Time will tell how this all plays out. Stay tuned.
Company Events
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