Total Pageviews

Earn Like the Pros: Our April 15–26, 2025 Stock Picks Delivered 24.5% Top Gain!

on
0

Mixed Economic Signals Guide Fed Patience, Keeping Financial Markets Focused on Data

on

 

Data Signals Softening Momentum, But Not Enough for a Fed Pivot

The U.S. economic landscape, as shaped by the April 23 data releases, shows signs of moderation. Activity in key sectors such as services and manufacturing is beginning to cool, while financial conditions continue to tighten in pockets of the economy. At the same time, resilience in housing and the ongoing drawdown in crude oil inventories point to persistent inflationary risks. This combination of softening and stickiness reflects a macro environment that is shifting—but not conclusively enough to warrant a change in Federal Reserve policy.

The Fed is likely to maintain a cautious stance. While some data supports a more dovish tone, the broader picture does not provide enough justification for a pivot. The central bank will want to see sustained easing in inflation pressures and clear signs of slowing labor market momentum before moving toward any rate cuts.

Energy Markets Hint at Inflation Risk Amid Falling Oil Inventories

API Crude Oil Stock Change (April 18):

  • Actual: -4.565M

  • Previous: 2.4M

The headline figure here is significant. A draw of 4.565 million barrels from crude inventories represents a sharp reversal from the prior week’s build. While this data point doesn't have a direct influence on monetary policy, it does add complexity to the inflation picture. Lower oil inventories can drive prices higher if demand remains steady or rises, putting upward pressure on energy costs across the economy.

Persistent inflation in energy prices has been a key concern for policymakers in the past, particularly given its spillover effects into transportation, manufacturing, and consumer sentiment. Even though the Fed typically focuses more on core inflation (which excludes energy), rising oil prices can indirectly contribute to broader price pressures.

Policy Impact: Marginally hawkish. The data does not demand immediate action, but it adds a note of caution to the dovish outlook, especially if the drawdown becomes a trend.

Mortgage Rates Tick Higher – A Sign of Passive Tightening

MBA 30-Year Mortgage Rate (April 18):

  • Actual: 6.9%

  • Previous: 6.81%

The uptick in mortgage rates to 6.9% is meaningful, particularly in an environment where the Fed is not actively raising the federal funds rate. Higher mortgage rates serve as a form of passive tightening. They contribute to reduced affordability in the housing market, limit refinancing activity, and generally weigh on consumer sentiment.

From the Fed’s perspective, this movement may be welcome. It allows for tighter financial conditions without additional intervention. As long as inflation expectations remain anchored and broader credit conditions continue to reflect restraint, the Fed may interpret this as progress toward its goals.

Policy Impact: Dovish. With long-term rates doing part of the Fed’s job, the central bank has room to be patient.

Composite PMI Cools – Economic Momentum Wanes

S&P Global Composite PMI Flash (April):

  • Actual: 51.2

  • Previous: 53.5

The composite PMI provides a broad snapshot of business activity, and the drop from 53.5 to 51.2 is a material softening. While still above 50—indicating continued expansion—the deceleration suggests reduced output growth and potentially waning business confidence. The PMI data often acts as a leading indicator, so this drop might be the first sign of deeper weakness ahead.

For the Fed, this kind of signal supports the idea that current policy is restrictive enough to slow the economy. However, it also illustrates that the softening is gradual, not abrupt, and thus does not call for urgent policy reversal.

Policy Impact: Dovish. The deceleration aligns with a more cautious tone but lacks the severity needed to push for rate cuts.

Manufacturing Stabilizes, But Risks Remain

S&P Global Manufacturing PMI Flash (April):

  • Actual: 50.7

  • Previous: 50.2

  • Consensus: 49.1

The manufacturing sector has been under pressure for much of the post-pandemic cycle. The slight improvement in this month’s PMI, and the beat versus consensus, is encouraging. However, at 50.7, the reading still signals modest growth at best. The sector remains vulnerable to high input costs and global supply chain headwinds.

Although not strong enough to tilt policy expectations, this data point helps temper the broader dovish narrative. It implies that while some sectors are slowing, others are holding steady—underscoring the uneven nature of the current slowdown.

Policy Impact: Neutral to mildly hawkish. The Fed will note the resilience but won't act based on this alone.

Services Activity Drops Sharply – A Key Dovish Signal

S&P Global Services PMI Flash (April):

  • Actual: 51.4

  • Previous: 54.4

  • Consensus: 52.5

This is arguably the most important dovish development of the day. The services sector, which has been one of the strongest drivers of inflation, saw a notable drop in activity. A 3-point decline in a single month is a strong indication that the momentum in service-related demand may be starting to ease.

The Fed watches this data closely because services inflation—especially wage-driven components—tends to be sticky. A sustained slowdown in services activity could directly contribute to disinflation in core categories, helping justify a future easing bias.

Policy Impact: Clearly dovish. The Fed will view this as progress, even if it’s not yet decisive.

Housing Market Defies Rates, But It's Not Enough for a Pivot

New Home Sales (March):

  • Actual: 0.724M

  • Previous: 0.674M

  • Consensus: 0.68M

New Home Sales MoM (March):

  • Actual: 7.4%

  • Previous: 3.1%

The housing sector’s resilience remains one of the key puzzles for policymakers. Despite elevated mortgage rates, new home sales surged in March, beating both consensus and prior-month performance. This could indicate pent-up demand or limited supply in the existing home market, pushing buyers toward new constructions.

While strong housing data does not negate the broader signs of softening, it does complicate the Fed’s ability to pivot. A hot housing market can sustain demand-side inflation pressures, and this kind of strength could delay the timing of any rate cuts.

Policy Impact: Moderately hawkish. Resilience in housing introduces uncertainty into the dovish outlook.

Fed Will Likely Stay Patient – No Rush to Cut Rates

Bringing these pieces together, the data points collectively support a strategy of patience. The Fed is unlikely to respond to any single data point, especially in an environment where some signals—like services PMI—are softening, while others—like housing—remain strong.

The bar for policy easing remains high. Fed officials will want to see several months of consistent disinflation and a gradual cooling in labor market metrics before adjusting their guidance. As things stand, the current stance—tight but paused—is aligned with the mixed macro picture.

Conclusion: Soft Signals, But Fed Holds the Line

April’s data does not shift the Fed’s trajectory. While the dovish tone is clear—especially in services and composite activity—it is not decisive. Until core inflation falls more substantially and labor conditions weaken, the central bank will likely maintain its current posture.

The message to markets is simple: policy flexibility is in place, but no action will be taken without confirmation. The softening is real, but the Fed remains cautious.

Bottom Line:

  • The tone is dovish, but not dovish enough for a pivot.

  • The Fed remains patient, data-dependent, and firmly in “wait-and-see” mode.

  • Until stronger evidence emerges, rate cuts will remain off the table.





Enjoyed this article?
Take your trading further with exclusive premium content, including stock picks, fundamental analysis, and DCF valuations — available to purchase individually.
👉 Darrisman's – Access the full content now!



Other related post

BTC and XRP Bounce from Key Support – Is a Full Rally Taking Shape?

Swing Stock Picks to Consider (April 21 – May 9, 2025)

U.S. Dollar on the Edge: What Weekly and Daily Charts Reveal About DXY’s Next Move

 Airline Stocks vs Oil Prices: Tracking the Correlation Since 2008 (DAL, LUV, AAL)


Comments

Post a Comment