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Reuters
4 days ago
- Business
- Reuters
Officials head into Fed meeting with uncertain long-term inflation outlook
June 18 (Reuters) - Among the uncertainties facing Federal Reserve officials as they debate the proper setting of monetary policy, one of the trickiest has been divining where inflation is going, especially over the longer run. Fed officials hold that expectations about where prices are heading exert a strong pull on current levels of inflation. More importantly, stable long-term expectations grant officials confidence that whatever challenges the economy faces, the public has faith inflation will be steady eventually. The last few months have been tricky in that regard, notably in surveys of households. President Donald Trump's global trade war is widely expected to push up inflation via surging import taxes. It's unclear whether that will be a one-time hit or something longer lasting. If it's the former, some Fed officials have signaled they could look through it, but the latter could call for interest rate policy to remain on the tighter side. The Fed is expected to hold rates steady on Wednesday, but it is less clear after that just when the central bank might cut rates, as it penciled in last March. When it comes to survey-based measures of the price-pressure outlook, the Federal Reserve Bank of New York and the University of Michigan questionnaires are the most closely watched. Both have shown shifts in near-term expectations, but for some time their longer-run readings have diverged. Market-based readings, meanwhile, have generally been more stable. Collectively it's led policymakers to question what's really going on. Fed Governor Christopher Waller said this month 'we are seeing a dramatic disparity' in the inflation expectations data, including that of professional forecasters. Waller, citing the Michigan data, dismissed it. He noted that if households were truly expecting high inflation in the longer-run future they'd be pressing for much higher wages to compensate, and they aren't. He also said there'd also likely be a persistent surge in consumer spending to get ahead of higher prices, and while that appeared to have occurred briefly for some big-ticket purchases like automobiles earlier this spring, it has not been sustained. 'I prefer to look at market-based measures of inflation compensation and professional forecasters' expectations because they have money on the line,' Waller said, and noted as a result, 'my assumption (is) that longer-term inflation expectations remain anchored.' Governor Adriana Kugler also said, opens new tab the Michigan data caught her attention, noting it showed 'the most dramatic increases' but also flagging methodology changes that have caused some to question its findings. 'While I take seriously the concern that recent methodological changes in the survey may have made this measure less reliable, this survey is a longstanding and important barometer of consumer sentiment, and I still monitor the signals it is giving us closely.' The University of Michigan's Surveys of Consumers have been asking households to estimate what inflation would be since the late 1970s. When its 5-year inflation estimate surged in early June 2022, it helped nudge the Fed toward an outsized 75-basis-point rate hike over the more modest action markets had been expecting. Last year, the survey transitioned from phone-based interviews to web-based interviews. Many economists have wondered if that has affected its findings, especially since Michigan data on longer-term expectations has been notably higher than New York Fed data pointing to a steadier outlook. Joanne Hsu, who directs the University of Michigan survey, dismissed the methodology shift as a non-issue. The organization ran parallel surveys — both phone and web — for seven years before formally changing and from this experience, she said, 'we know very well how inflation expectations operate via web interviewing versus phone interviewing, and they basically move in parallel.' Hsu noted another key difference is the New York Fed uses panels of respondents who are involved for a year while her organization rotates participants. Hsu said engaging respondents repeatedly causes them to pay more attention to what they're being asked about, and in being better informed they're less likely to send a reliable signal about how the broader public views price pressures. Hsu said better survey outcomes come from a mix of 'informed people, uninformed people, high-income people, low-income people, you know, people across the spectrum. And so that's what we're trying to do, we're trying to get all of those different types of people into our data' because that's the truest expression of expected inflation. Hsu cautioned survey watchers from fixing on specific numbers and said, 'the trend is much, much more important than the level.' 'People are very worried about the inflation outlook right now,' she said, although those fears have abated somewhat amid Trump's retreat for now from some of the stiffest tariffs he had proposed earlier in the year.
Yahoo
6 days ago
- Business
- Yahoo
Consumer Rebound Boosts Outlook for Discretionary ETFs
Americans have started to feel optimistic about the economy, as the initial shock from steep tariffs begins to wear off and inflation pressures ease. Rising consumer sentiment bodes well for household spending in the coming months. It is expected to have a positive impact on the consumer discretionary sector, which attracts a major portion of consumer spending. Investors can tap the encouraging trend in the basket form through consumer discretionary ETFs like Consumer Discretionary Select Sector SPDR Fund XLY, Vanguard Consumer Discretionary ETF VCR and iShares U.S. Consumer Services ETF IYC. These funds have a Zacks ETF Rank #3 (Hold).U.S. consumer sentiment climbed in June for the first time in six months, offering a glimmer of optimism amid lingering policy uncertainty. According to preliminary data from the University of Michigan's Surveys of Consumers, the Consumer Sentiment Index jumped to 60.5, up from 52.2 in May and well above economists' expectations of 53.6. The rebound follows one of the lowest sentiment readings on record in May. Short and long-term inflation forecasts softened notably. One-year inflation expectations dropped significantly to 5.1% in June, down from 6.6% in May—a level not seen in over four decades. Expectations for inflation over the next five to 10 years also edged down slightly to 4.1% from 4.2% the previous month (read: Sector ETFs Set to Gain as Inflation Cools in May). The surge in confidence followed the Trump administration's decision to delay new tariffs in April and reach a temporary truce with China in May. As Surveys of Consumers Director Joanne Hsu remarked, 'Consumers appear to have settled somewhat from the shock of the extremely high tariffs announced in April and the policy volatility seen in the weeks that followed.'These shifts suggest consumers are regaining some confidence as economic conditions stabilize and uncertainty around trade policy begins to diminish. The data aligns with the other survey report released late last month. The Conference Board's Consumer Confidence Index rose sharply in May to 98, well above April's 85.7 reading and comfortably ahead of the 87.1 economists had forecast. Its expectations index, which gauges the outlook for income, business, and labor conditions over the next six months, surged to 72.8 in May from a 13-year low of 55.4 in April — the strongest monthly jump since May 2009. Consumer Discretionary Select Sector SPDR Fund (XLY) Consumer Discretionary Select Sector SPDR Fund offers exposure to the broad consumer discretionary space and tracks the Consumer Discretionary Select Sector Index. It holds 51 securities in its basket, with key holdings in hotels, restaurants and leisure, broadline retail, specialty retail, and automobiles with a double-digit allocation each (read: Consumer Discretionary ETFs Set for a Comeback?).Consumer Discretionary Select Sector SPDR Fund is the largest and most popular product in this space, with AUM of $21.7 billion and an average daily volume of around 4 million shares. It charges 0.08% in expense Consumer Discretionary ETF (VCR) Vanguard Consumer Discretionary ETF follows the MSCI U.S. Investable Market Consumer Discretionary 25/50 Index and holds 296 stocks in its basket. In terms of industrial exposure, broadline retail, automobile manufacturers and restaurants occupy the top three spots. Vanguard Consumer Discretionary ETF is the low-cost choice in the space, charging investors only 9 bps in annual fees while volume is good at nearly 77,000 shares a day. The fund has managed $6 billion in its asset base so U.S. Consumer Services ETF (IYC)iShares U.S. Consumer Discretionary ETF offers exposure to U.S. companies that distribute food, drugs, general retail items and media by tracking the Russell 1000 Consumer Disc 40 Act 15/22.5 Daily Capped Index. It holds 174 stocks in its basket, with key holdings in consumer discretionary, consumer services, media & entertainment, and autos & U.S. Consumer Discretionary ETF has amassed $1.5 billion in its asset base and trades in a moderate volume of 86,000 shares a day on average. It charges 39 bps in annual fees from investors. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports Vanguard Consumer Discretionary ETF (VCR): ETF Research Reports iShares U.S. Consumer Discretionary ETF (IYC): ETF Research Reports This article originally published on Zacks Investment Research ( Zacks Investment Research
New York Post
6 days ago
- Business
- New York Post
Popular home goods chain files for bankruptcy due to ‘rapidly evolving trade environment'
Popular home goods chain At Home has filed for bankruptcy, with its chief executive citing a 'rapdily evolving trade environment' as President Trump's tariffs hammer the retail sector. The Dallas-based chain, which boasts 260 stores across 40 states, said it would continue to operate as usual during the Chapter 11 bankruptcy process. At Home, which is backed by private equity firm Hellman & Friedman, has entered into an agreement with its lenders that 'will eliminate substantially all' of its roughly $2 billion in debt and provide $200 million in new funding, the company said. 3 Popular home goods chain At Home has filed for bankruptcy. UCG/Universal Images Group via Getty Images CEO Brad Weston, who joined the company last year and previously ran Party City Holdings, blamed the chain's struggles on 'an increasingly dynamic and rapidly evolving trade environment as we navigate the impact of tariffs.' The Chapter 11 process 'will improve our ability to compete in the marketplace in the face of continued volatility and increase the resilience of our business for the long term,' Weston added. At Home did not immediately respond to The Post's request for comment. The chain plans to close approximately 20 stores as part of the bankruptcy process, The Wall Street Journal recently reported. At Home did not announce store closures on Monday. The home goods industry has been suffering from a slump in sales after consumer sentiment remained stubbornly low for months as Trump's trade war fueled uncertainty. The Container Store, Bed Bath & Beyond and Big Lots have all filed for bankruptcy. Home Depot and Lowe's have also reported shaky earnings as customers hold off on home improvement projects. Consumer sentiment bounced back in June as a 90-day tariff deal with China eased tensions, according to the University of Michigan's Surveys of Consumers. 3 A shopper browses garden decorations in an At Home store. MediaNews Group via Getty Images At Home, meanwhile, has faced liquidity constraints for months. It has roughly $17.3 million available under its asset-based lending facility, sources told Bloomberg in May. Its $600 million first-lien term loan is trading at distressed levels – most recently quoted at just 38 cents on the dollar – as the retailer has been seeking to restructure its balance sheet, according to the Bloomberg report. Trump's tariffs haven't helped the chain, which relies heavily on China for imports of furniture and home decor. At Home started shifting its production away from China ahead of Trump's announcement in April, which levied taxes as high as 145% on Chinese goods. 3 A customer enters an At Home store in Queens, New York. UCG/Universal Images Group via Getty Images The president has since lowered those rates to 30% as part of a deal with China. In May 2023, At Home enjoyed a liquidity boost when it raised $200 million through the sale of five-year senior secured notes and exchanged $442 million in unsecured bonds for toggle notes. But it wasn't enough for the retailer to maintain revenue growth as customers pulled back on spending.
NBC News
13-06-2025
- Business
- NBC News
Consumer sentiment reading rebounds to much higher level than expected as people get over tariff shock
Consumers in the early part of June took a considerably less pessimistic view about the economy and potential surges in inflation as progress appeared possible in the global trade war, according to a University of Michigan survey Friday. The university's closely watched Surveys of Consumers showed across-the-board rebounds from previously dour readings, while respondents also sharply cut back their outlook for near-term inflation. For the headline index of consumer sentiment, the gauge was at 60.5, well ahead of the Dow Jones estimate for 54 and a 15.9% increase from a month ago. The current conditions index jumped 8.1%, while the future expectations measure soared 21.9%. The moves coincided with a softening in the heated rhetoric that has surrounded President Donald Trump 's tariffs. After releasing his April 2 'liberation day' announcement, Trump has eased off the threats and instituted a 90-day negotiation period that appears to be showing progress, particularly with top trade rival China. 'Consumers appear to have settled somewhat from the shock of the extremely high tariffs announced in April and the policy volatility seen in the weeks that followed,' Joanne Hsu, survey director, said in a statement. 'However, consumers still perceive wide-ranging downside risks to the economy.' To be sure, all of the sentiment indexes were still considerably below their year-ago readings as consumers worry about what impact the tariffs will have on prices, along with a host of other geopolitical concerns. On inflation, the one-year outlook tumbled from levels not seen since 1981. The one-year estimate slid to 5.1%, a 1.5 percentage point drop, while the five-year view edged lower to 4.1%, a 0.1 percentage point decrease. 'Consumers' fears about the potential impact of tariffs on future inflation have softened somewhat in June,' Hsu said. 'Still, inflation expectations remain above readings seen throughout the second half of 2024, reflecting widespread beliefs that trade policy may still contribute to an increase in inflation in the year ahead.' The Michigan survey, which will be updated at the end of the month, had been an outlier on inflation fears, with other sentiment and market indicators showing the outlook was fairly contained despite the tariff tensions. Earlier this week, the Federal Reserve of New York reported that the one-year view had fallen to 3.2% in May, a 0.4 percentage point drop from the prior month. At the same time, the Bureau of Labor Statistics this week reported that both producer and consumer prices increased just 0.1% on a monthly basis, pointing toward little upward pressure from the duties. Economists still largely expect the tariffs to show an impact in the coming months. The soft inflation numbers have led Trump and other White House officials to demand the Fed start lowering interest rates again. The central bank is slated to meet next week, with market expectations strongly pointing to no cuts until September.
13-06-2025
- Business
Consumer sentiment improves more than expected as Trump rolls back tariffs
Consumer sentiment improved more than expected in June, indicating a swell of optimism as President Donald Trump rolled back some tariffs in recent weeks. The resurgence of shopper attitudes ended six consecutive months of worsening sentiment, University of Michigan survey data on Friday showed. Before the uptick, consumer sentiment had fallen near its lowest level since a bout of inflation three years ago. Year-ahead inflation expectations, meanwhile, dropped sharply from 6.6% last month to 5.1% in June, the data showed. The anticipated inflation level would still mark a major increase from the current year-over-year inflation of 2.4%. The improvement of sentiment was reflected across all demographics, including age, income, wealth, political party and geographic region, Surveys of Consumers Director Joanne Hsu said in a statement. In recent weeks, Trump has dialed back some of his steepest tariffs, easing the costs imposed upon importers. Such companies typically pass along a share of the higher tax burden in the form of price hikes. A trade agreemen t between the U.S. and China slashed tit-for-tat tariffs between the world's two largest economies and triggered a surge in the stock market. Within days, Wall Street firms softened their forecasts of a downturn. The U.S.-China accord came weeks after the White House paused a large swath of Trump's "Liberation Day" tariffs targeting dozens of countries. Trump also eased sector-specific tariffs targeting autos and rolled back duties on some goods from Mexico and Canada. Still, an across-the-board 10% tariff applies to nearly all imports, except for semiconductors, pharmaceuticals and some other items. Those tariffs stand in legal limbo, however, after a pair of federal court rulings late last month. Tariffs remain in place for steel, aluminum and autos, as well as some goods from Canada and Mexico. Fresh inflation data this week showed a slight acceleration of price increases, but inflation remains near its lowest level since 2021. So far, the economy has defied fears of price hikes, instead giving way to a cooldown of inflation over the months since Trump took office. Warning signs point to the possibility of elevated prices over the coming months, however. Nationwide retailers like Walmart and Best Buy have voiced alarm about the possibility they may raise prices as a result of the levies. The Organization for Economic Co-operation and Development, or OECD, said this month it expects U.S. inflation to reach 4% by the end of 2025, which would mark a sharp increase from current levels. Federal Chair Jerome Powell, in recent months, has warned about the possibility that tariffs may cause what economists call "stagflation," which is when inflation rises and the economy slows. Stagflation could put the central bank in a difficult position. If the Fed were to raise interest rates, it could help ease inflation, but it may risk an economic downturn. If the Fed were to cut rates in an effort to spur economic growth, the move could unleash faster price increases. For now, the Fed appears willing to take a wait-and-see approach. At its last meeting, in May, the Fed opted to hold interest rates steady for the second consecutive time. The Fed will announce its next rate decision on June 18. Investors peg the chances of a decision to leave rates unchanged at 99.9%, according to the CME FedWatch Tool, a measure of market sentiment.
