The Fed will head into its decision on monetary policy tomorrow with some soft May economic data to digest.
This morning's reports showed retail sales growth was negative on the month. Industrial production was negative on the month. The National Association of Home Builders Index came in at housing recession levels.
What about import prices? That's what the Fed is convinced should be rising, giving the draconian tariffs.
Import prices were flat on the month. And since Trump launched tariffs on China on February 4th, the change in monthly import prices through May is down, not up.
Remember, yesterday we talked about the Fed's view on trade policy uncertainty back in 2019. Unlike their inflationary view now, back then they saw it as a drag on growth — as demand destruction with deflationary pressures. And when they started cutting rates in July of 2019, they cited weak foreign growth (particularly in China and the euro area). So, weak global demand.
With that in mind, in addition to import price data, we also had data on export prices this morning from the month of May.
Export prices were down 0.9% (weak global demand).
This is the largest monthly decline since October 2023.
What happened in October of 2023? Jerome Powell signaled the end of the tightening cycle (a dovish pivot).