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Wednesday will be a busy one. GDP (Gross Domestic Product) data will be the first estimate for real GDP for Q1 25, with the economy estimated to have cooled to an annualised rate of 0.4%, down from 2.4% in Q4 24. Per the Atlanta GDPNow model, the latest estimate for Q1 25 growth (24 April)\u00a0is -2.5% (annualised). According to the \u2018alternative model forecast\u2019, which adjusts for imports and exports of Gold, it is\u00a0running at -0.4%.<\/p>\n
The first estimate of US GDP data will likely show some<\/em> of the anticipated<\/em> impact of trade tariffs in Q1, hence, the marked slowdown forecasted. Wednesday also sees the latest PCE price index data (Personal Consumption Expenditures) \u2013 which the US Federal Reserve (Fed) uses to measure inflation \u2013 and economists expect price pressures to have cooled across the board in March. MM, headline (core) PCE inflation is expected to have cooled to 0.0% from 0.3% (0.1% from 0.4%), and YY headline (core) PCE inflation is anticipated to have eased to 2.2% from 2.5% (2.6% from 2.8%).<\/p>\n The Fed will likely maintain the overnight target rate at 4.25% \u2013 4.50% in May, with about two basis points (bps) of easing priced in for a 25 bp cut. For the year, investors are still expecting around three rate cuts (84 bps priced in) \u2013 the first rate reduction is anticipated either in June or July. Before the Fed entered its blackout period on 20 April, Fed officials expressed caution and patience regarding policy easing amid tariff uncertainty, indicating that rate cuts were not on the agenda for May\u2019s meeting.<\/p>\n Fed Governor Christopher Waller also recently made the airwaves, stating that he believes tariffs will increase price pressures and lower employment and growth, but the effect on prices could<\/em> be a one-time occurrence that will pass through. Waller also mentioned that responding to the impact of rising prices is challenging. Reflecting on the pandemic era, the Fed assumed that a spike in inflation was temporary, only to discover that it was not the case and found themselves behind the curve.<\/p>\n As I have mentioned in previous posts, given the impact of potential price increases from tariffs and the effect on growth, this continues to place the Fed between a rock and a hard place. It is no secret that the \u2018soft\u2019 data has shown signs of weakness, but it has yet to converge with the \u2018hard\u2019 data. Fed\u2019s Waller noted that he does not expect to see much impact in hard numbers until the year\u2019s second half, so the Fed will likely be on the sidelines until a clearer picture unfolds.<\/p>\n US Treasury yields concluded lower across the curve last week, while the US Dollar (USD) Index wrapped up in moderately positive territory, snapping a four-week losing streak. Safe haven FX was less in demand \u2013 both the Japanese yen (JPY) and the Swiss franc (CHF) ended the week negatively versus the USD \u2013 and Spot Gold (XAU\/USD) also took a breather.<\/p>\nRate Cut Unlikely Next Month<\/h2>\n
Market Outlook<\/h2>\n