The Federal Reserve left interest rates unchanged, but cited concerns that inflation measures “have declined and are running below 2 percent” (the Fed’s target). Inflation ran a cool +1.5% y/y in March. Chairman Powell described the situation as “transient”, a remark some interpreted to mean a rate cut this year was less likely, so the probability of a cut fell from 66% to 53%. The April ISM manufacturing report fell -2.5 points to its lowest level in 31 months. New orders fell a sharp -5.7 points to 51.7; a reading below 50 indicates contraction. Seven of the ten components fell, leaving only six above 50. Real disposable income fell -0.2% m/m in March, the second loss in three months, putting the y/y rate to +2.3%, the slowest in two years. By contrast, personal consumption rose a strong +0.7% m/m, putting the y/y/ rate at +2.9%. Consumer confidence gained +5.0 points to 129.2, and while that’s below recent highs, it is still historically strong. Q1 2019 GDP growth was stronger than expected at +3.2% q/q annualized, but the details were weak. Much of the gain was driven by the third consecutive increase in inventories, and a sharp decrease in imports, both indicating weak demand.
