Treasury
U.S. inflation jumped to 4.2% in May, a three-year high, with energy prices surging due to the blockade of the Strait of Hormuz, contributing over 60% of the inflationary pressure. Core CPI rose 2.9% year-over-year, still above the Fed's 2% target. If the strait disruption continues through the Labor Day weekend, the energy shock could spread to more sectors and affect the monetary policy path.
An NFIB survey released on Tuesday showed that soaring energy prices pushed the small business optimism index to its lowest level since October 2024. Chief economist Bill Dunkelberg noted that large and unpredictable increases in fuel prices hit small businesses harder. Job openings and hiring plans fell to a six-year low, with 14% of owners citing labor costs as their biggest problem, the highest since the survey began in 1973.
The OECD's latest economic outlook shows that US economic growth is expected to gradually slow from about 2% in 2026 to 1.8% by 2027, mainly due to energy price shocks from the Iran war dampening consumer spending. The report also mentioned possible Federal Reserve rate hikes and warned of downside economic risks.
Data released by the U.S. Bureau of Labor Statistics on Tuesday showed that job openings surged to a two-year high in April, while hiring declined. The largest increase in job openings was in the professional and business services sector, but analysts warned that subsequent data revisions could erase some of the gains.
The ISM manufacturing index rose 1.3 points month-over-month to 54 in May, marking the fastest expansion in four years, with new orders hitting a four-month high. All six major manufacturing industries expanded, but 69% of executive comments were negative, 42% cited the Iran war, and 57% were concerned about price volatility.
U.S. inflation accelerated to 3.8% in April, outpacing income growth, leading to a decline in real income, weak consumer spending, and the savings rate falling to its lowest since 2022. Federal Reserve officials hinted at possibly abandoning the easing bias and even considering rate hikes.
A survey released Tuesday by The Conference Board showed the consumer confidence index fell 0.7 points to 93.1 in May, as rising prices for goods such as gasoline led two-thirds of households to cut spending. A University of Michigan survey also showed consumer sentiment at a historic low.
Survey data released by the University of Michigan on Friday showed that U.S. consumer confidence fell to a historic low this month, with soaring gasoline prices being the main driver. Long-term inflation expectations rose by 0.5 percentage points to 3.9%. 57% of consumers spontaneously mentioned that high prices are eroding their financial situations. Federal Reserve Governor Waller stated that 'inflation is not moving in the right direction,' hinting that a future interest rate hike cannot be ruled out. Interest rate futures markets show the probability of a rate hike within the year has risen to 64%.
The latest S&P Global survey shows that inflationary pressures from the Iran war are dragging on U.S. economic growth, employment, and business confidence. The May composite purchasing managers' index showed sluggish growth for a second consecutive month, with services sector optimism dropping to its lowest since April 2025. Federal Reserve officials have hinted that rate hikes may be needed to curb inflation, and market expectations for rate increases this year have risen.
The Fed's latest annual survey reveals that although 73% of American adults report their financial situation as okay or comfortable, overall views on the economy have darkened, with 42% of respondents worried about job prospects and over 90% citing inflation as the most common financial concern. The survey also found that financial well-being has significantly declined among low-income, younger, and Black groups, while energy price increases triggered by Middle East conflicts are further dragging down growth expectations.