US Consumer Spending Under Pressure as Inflation Picks Up

Añadido: 2026-05-28

[00:00:00]Well, it's a higher yield because basically this is old data and old news.

[00:00:04]Uh, you know, the market this morning at least is really concentrating on where is oil today. Right.

[00:00:09]And oil is up a couple of bucks, uh, at the moment because of the strikes overnight by the US. So people are looking through this data.

[00:00:16]And obviously there's also so much data to digest here that, you know, we're all like quite full right now. So we're trying to parse out what's the most important bits of this. And and you noted, Tom, that, uh, the spending being flat a month on month, um, is actually, uh, excuse me, the income being flat month on month actually is not very good because now we have negative income. Um, in large part maybe, uh, it could drive the economy, um, uh, a little bit weaker.

[00:00:44]And, you know, along with the weaker than expected, uh, GDP number for the first quarter. Um, you know, that's not necessarily a particularly good sign, even though the inflation data was a little bit better than expected. So just think that the headline, I'm a headline kind of person, IRA, you're the one that digs 27 layers deep.

[00:01:02]But the headline annualized 3.8% PC Price Index.

[00:01:06]I mean, that's got to get the attention of folks not just to the fed, but I know around Washington and policymakers and things like that.

[00:01:12]How do you what's a 3.8% number mean to you?

[00:01:16]Yeah. Well, it means, for one thing, that it's going to be really difficult for Kevin Warsh to increase, uh, to lower interest rates. Right.

[00:01:23]Like, how can you lower interest rates when, you know, not only are you running above target in terms of your favored, uh, your favorite inflation measure?

[00:01:31]So even if you trim out some of the details of this, and we haven't been able to do that yet because that's obviously the number just came out.

[00:01:38]But even if you trim it out, you're still going to be above the 2% target that the fed set. So it's going to be hard for Kevin Warsh to convince other members of the fed to even think about cutting interest rates.

[00:01:48]So, so so I think for now, when it comes to at least interest rate policy, you're more likely to see the fed on hold until and unless one the war ends and then two, if there's major changes to the employment situation, which, you know, obviously we'll get more of that next week.

[00:02:03]This wall of data. And, you know, as I said before, folks, I mean, there's a dynamic here to nominal GDP in it's new territory for chairman worship IRA Jersey. Do you have it in store brick analog you can plug in or is he in new territory. I think in many respects he's in new territory because even though like you could argue and some people have argued that we're we're moving toward a stagflation area type environment because real growth should slow. Um, given that you might have a lot more of people, uh, spending having to go to, uh, to fuels and gasoline, but then people then talk about electrification and then, you know, we're not talking about, you know, 10% inflation rates like we had back in the 1970s and early 80s. We're talking more about, you know, 3 or 4% inflation, right. Which, um, historically speaking, when you go back even to, you know, earlier in my career, go back 30 years, when I started in this business, we were talking about, you know, 2.8%, 3% and, uh, PC deflator. That was fine.

[00:03:03]And that was normal. Right.

[00:03:05]So, um, so that is more sustainable, right?

[00:03:08]Inflation like we have today is somewhat more sustainable than inflation at 9 or 10% like we had a few years ago. Um, just because, you know, at least over the last few years, you've seen wages growing at 4%.

[00:03:20]So that means you still had real wages going up, which is the reason why that personal income number, I think, is a little bit disturbing to me.

[00:03:26]And I want to dig into that a little bit more because, um, if we do have negative real wages, that's when you wind up seeing, uh, pretty aggressive slowing in the economy on a forward basis. And, um, so, so, so we want to see, is this the start of a trend or is this just like a one off measure because, you know, Social Security payments were delayed or something like that.

[00:03:44]So so we have to dig into the details of some of this.

[00:03:47]So unfortunately, Paul, I do have to dig into those details to be able to get you more information. Again, I'm not a details guy.

[00:03:53]I'm right. I'm right on the surface.

[00:03:54]But I see personal income flat. I see my GDP number come in below expectations. Um, okay.

[00:04:01]This is like stagflation. This is brilliant, Paul.

[00:04:04]IRA, all of us think like Paul. It's ugly out there.

[00:04:09]Does the bond market signal that. So while the bond market is signaling that it's really worried about inflation.

[00:04:16]Right. So when you look at like that two year yield, which we you know, we talk about being very sensitive to policy rates.

[00:04:20]And of course it is. But when you look at what's sold off and why it's sold off so much, it's also because inflation expectations in the short term have really gone up pretty significantly.

[00:04:30]They've gone up 40 ish basis points. Uh, in terms of the uh, the two year tips break even. So.

[00:04:37]So if we wind up getting a situation where oil gets back down sustainably to $80 a barrel, you can wind up seeing two year yields get back to kind of where the fed funds rate is right now. Um, well, we get down below that.

[00:04:49]I doubt it because the market's still going to price for the fed to be on holds probably for, for a pretty, uh, long period of time.

[00:04:57]Um, but you can easily get a 30 basis point rally on on just on inflation expectations going down. Now the long end of the curve is not only worried about inflation and in fact inflation expectations.

[00:05:08]Longer term it barely moved. It's that what's going on with the fiscal situation. Will budgets globally um wind up uh, getting even worse because of either defense spending or social spending to, to kind of combat people's. Uh, people having to spend more on energy. And that's one of the reasons why you've seen this global bond selloff. So, you know, we talk about us 30 year being over 5% sure it is. But this really is a global phenomenon.

[00:05:34]You look at Japan with, you know, interest rates that haven't been the song in decades. The UK is still having some of its own fiscal problems. Um, so so you wind up seeing all government bond yields go up. And and one of the triggers for that obviously was the war in Iran. Um, but but I don't see what makes, uh, what makes yields go down quickly over the next couple of uh, couple of months in the long end of the curve in particular.