Market sentiment seemed more positive this week as Trump announced the possible easing of tariffs imposed on China. There was also an announcement of a trade deal between the United States and United Kingdom as well as the promise of more deals to come. However, trade talk wasn’t the only big news item this week as the Fed made its May rate decision on Wednesday.
The ISM Services PMI was released on Monday, which came in at 51.6 compared to an expected 50.2. This means that demand for services is still strong, which may play a role in how quickly inflation falls back toward 2 percent. This month’s figure was also higher than the April reading of 50.8.
On Wednesday, the Fed announced that it was holding the nation’s key interest rate at 4.5 percent. This was a widely expected outcome as most predicted that the Fed would stand pat until there was more certainty regarding Trump’s trade policy. In the FOMC statement, Jerome Powell noted that there was still a possibility of higher inflation and the potential for stagflation. Stagflation is the combination of inflation and stagnant growth, which means that the Fed must choose which problem is most important to address.
There is still a strong chance that the Fed will cut interest rates later in the year as more data becomes available regarding tariffs and their impact on the economy. It’s worth noting that other major central banks have begun or continued an easing cycle, so the United States is bucking the global trend by retaining the status quo.
On Thursday, Trump announced that he would be holding talks with China about a trade deal. He acknowledged that tariffs couldn’t go much higher than the 145 percent level, so it was only natural that they come down even if talks don’t necessarily lead to a deal right away.
On Friday afternoon, a slew of FOMC members gave talks around the country. The general message was that most of the data used to evaluate economic conditions came with a lag. Therefore, it’s still too early to determine how tariffs or other changes to policy might impact the economy going forward.
The S&P 500 finished the week slightly higher closing up .3 percent to finish at 5,659 on Friday afternoon. This represents a gain of 16.79 points for the index that is up 13 percent over the past month. The weekly low of 5,588 was established on Tuesday morning while the high of the week of 5,717 was established on Thursday afternoon.
The Dow was also up this week finishing .33 percent higher to close at 41,429. The Dow is now up about 10 percent this month after dropping significantly in April. On Tuesday morning, the index made its low of the week dipping to 40,822 while it made its high of the week of 41,739 on Thursday afternoon.
Finally, the Nasdaq finished the week up .53 percent to close at 17,928. The index is now up slightly more than 16 percent over the past month after gaining just over 94 points over the past five trading days. For the week, the index made a low of 17,530 on Wednesday and a high of 18,082 on Thursday.
In international news, Great Britain announced on Thursday that it was going to reduce its key interest rate from 4.5 percent to 4.25 percent. On Friday, Canada announced that its economy added 7,400 jobs over the past month.
On Tuesday, CPI figures are set to be released while Thursday sees a number of items on the calendar such as the Price Producers Index (PPI) and retail sales data. Unemployment claims and a speech from Jerome Powell are also on the schedule for Thursday. On Friday, the University of Michigan is set to release its consumer confidence and inflation expectation reports.