Prices are still rising faster than most people would like. The government reported this week that consumer prices (CPI) in April were up 3.8% compared to a year ago. This is well above what economists expected and the highest rate in several months. Gas and energy costs are the main driver, fueled by the ongoing conflict involving Iran in the Middle East. But it’s not just energy: groceries, airline tickets, and beef prices are all noticeably higher too. Wholesale prices, what businesses pay before passing costs along to you, jumped 1.4% in a single month. This is one of the biggest one-month moves in over four years. That kind of pipeline pressure typically means higher prices for consumers down the road. Although I think we can all agree that we are already feeling this today!
Despite those pressures, Americans are still spending and markets are celebrating. The Census Bureau confirmed this week that retail sales rose 0.5% in April and are up 4.9% from a year ago, as consumers continued to open their wallets for a seventh straight month. That positive backdrop combined with strong corporate earnings and optimism around the China summit pushed the stock market to record highs on Thursday. The S&P 500 closed above 7,500 for the first time ever, and the Dow Jones reclaimed the 50,000 mark. We did see some pullback today, but that should be expected given the amount of headline risk that still remains.
The Trump-Xi summit wrapped up Friday, and the tone was encouraging even if the details were light. President Trump called the talks “fantastic” and said “a lot of different problems” had been resolved. China agreed to purchase 200 Boeing aircraft, and the U.S. cleared 10 Chinese firms to purchase Nvidia’s advanced chips, a meaningful gesture on both sides. Perhaps most notable for potential global stability was that both leaders said they want the Strait of Hormuz reopened. We shall see if anything materializes on that front in the days and weeks ahead. Although no sweeping trade deal was announced, the overall direction of the relationship between both countries feels more constructive than it has in years.
On the interest rate front, the big news is that the Federal Reserve has a new leader. The Senate confirmed Kevin Warsh as Fed Chair this week, and he is expected to take office as early as next week. He steps in with inflation running hot, headline CPI at 3.8%, wholesale prices surging, and most major banks now expecting zero rate cuts in 2026. Some are even discussing the possibility of a rate increase next year, YIKES! Warsh’s first major policy meeting will likely be in June, and how he talks about inflation and the path ahead will be closely watched by investors everywhere. More to come in the weeks ahead.
Interesting to Note
A new study found that Americans now spend more money eating out than buying groceries — a first in U.S. history and a sign of just how much our relationship with food and convenience has changed over the last generation.
Looking Ahead
New Fed Chair Kevin Warsh. His first statements as chair will set the tone for interest rate policy for the rest of the year. Watch for his comments closely.
Trade deal follow-through. Markets will be watching to see if this week’s goodwill from Beijing translates into real, signed agreements on trade and supply chains.
Middle East developments. Both the U.S. and China want the Strait of Hormuz reopened. Whether that shared interest translates into real progress on the ground remains the biggest wildcard for energy prices and the economy.
Have a great weekend!
Written by: Chris Wasson, CFP®
Sources
U.S. Census Bureau — April Retail Sales
Federal Reserve — April FOMC Statement
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