Inflation data was mixed although May’s Producer Price Index report showed a higher than expected +0.5% MoM surge in prices at the wholesale level, while consumer prices edged up +0.2%. Producer prices are now up +3.1% YoY while consumer prices rose +2.8% YoY. The PCE Deflator for May rose +0.2% MoM and is up just +2.3% YoY.
As suggested at the outset above, short-term interest rates are trending higher as the Federal Reserve raised the Funds rate 0.25% at its June meeting. 3-month LIBOR has risen from 1.70% at the start of the year to 2.34% today.
Along with short-term interest rate pressures is a looming trade war. Tariffs are being enacted on an ever widening range of goods and the repercussions are only beginning to be felt. Should tensions escalate and spill over into a global trade war, we would expect inflation to surge and GDP to be negatively impacted. While we remain bullish on the impact of the tax reform act, we remain hopeful that cooler heads will prevail on trade and a major war can be averted.