LIVE MARKETS-Fed meat: Thursday data takes on both sides of the dual mandate

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FED MEAT: THURSDAY DATA TAKES ON BOTH SIDES OF THE DUAL MANDATE

Thursday brought with it data for the central bank to chew on as it assesses its next policy move; inflation is still on the wane while the labor continues to soften.

A third major take on May inflation added further evidence price growth, for now, hasn't strayed from its meandering path down to the Fed's target rate.

The Labor Department's Producer Price Index (PPI) USPPFD=ECI, which tracks the prices U.S. companies get for their goods and services at the figurative factory door, inched 0.1% higher in a partial rebound from April's upwardly revised 0.2% drop.

Economists predicted a 0.2% increase.

Year-over-year, PPI heated up, adding 10 basis points to print at 2.6% and hitting the consensus bull's eye.

"For the second day in a row, inflation data came in lower than expected and this gives the Fed room to sit on their hands," writes Chris Zaccarelli, chief investment officer at Northlight Asset Management. "As long as inflation isn’t increasing – or even better, is decreasing – the Fed can be patient and wait for more information on how the new tariffs and trade negotiations are going to impact the price stability part of their dual mandate."

Noting that the tariff pause is scheduled to be lifted next month, Zaccarelli adds, "we are still cautious even though many of the risks that were present in early April, appear to have receded."

Core PPI, which excludes food, energy and trade services, cooled down on an annual basis to 2.7%. Three of the four major U.S. inflation yardsticks are now well within 1 percentage point of Powell & Co's 2% price growth target; the exception being wage growth, which at least supports consumer spending.

Last week, 248,000 U.S. workers joined the queue outside the unemployment office USJOB=ECI, landing 8,000 to the north of economists' predictions.

It's a repeat of last week's number (upwardly revised to 248,000 from 247,000), which was the highest number of initial jobless claims since October.

The underlying trend, as expressed by the four-week moving average of initial claims, now has a clear upward bias, hitting its highest level since August 2023. This suggests layoffs are on the upswing.

"Loosening in the labor market does seem to be underway, albeit gradually, and from a relatively strong starting point," says Oliver Allen, senior U.S. economist at Pantheon Macroeconomics, who adds that "hiring probably will drop back further as the tariff shock works its way through the economy."

Ongoing jobless claims USJOBN=ECI, reported on a one-week lag, bumped 2.8% higher to 1.956 million, or 46,000 more than analysts expected. That's the most continuing claims since December 2021, when the labor market was still dragging itself from the COVID abyss, and supports recent consumer survey data suggesting laid off workers are finding it increasingly difficult to find a replacement gig.

"This latest reading is consistent with some further upward pressure on the unemployment rate, if sustained," Allen says.

(Stephen Culp)

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