FED
As expected, the Fed kept interest rates unchanged at 4.25%-4.50%. According to the Fed statement, “although swings in net exports have affected the data, …economic activity has continued to expand at a solid pace.” Unemployment has “stabilized at a low level” and inflation remained “somewhat elevated.” The committee noted that economic uncertainty has increased, and the risks of higher unemployment and higher inflation have risen. In his post-meeting remarks, Fed Chairman Jerome Powell said that “despite heightened uncertainty, the economy is still in a solid position.” However, the new administration is implementing substantial policy changes and their effects on the economy remain “highly uncertain.” Powell added that the Fed is well positioned to wait for greater clarity before adjusting its policy stance.
Our Take: While the Fed maintained a generally positive view of current conditions, it acknowledged heightened risks to the economy from changes in federal policy. Given this greater uncertainty, it is no surprise policymakers kept rates unchanged. The Fed can remain patient as it continues its careful, data-driven approach to policy normalization.
TARIFFS
With much fanfare, the Trump administration announced the completion of a trade deal with the U.K. that reduces tariffs on imports to the U.K. from those announced on April 2 and waives or limits certain sectoral tariffs in exchange for easier market access for U.S. goods in the U.K. and a commitment to purchase Boeing aircraft. During the announcement, President Trump indicated optimism around this weekend’s talks with a Chinese delegation but then later stated that a tariff rate around 80% would probably be appropriate for imports from China. Markets rallied on the optimism expressed about talks with China.
Our Take: The deal announced with the U.K. underwhelmed in terms of the level of specifics provided and the likely impact for both countries. Optimism that the most disruptive parts of the administration’s trade policy will be reduced had a bigger impact on markets.
OIL
OPEC+ announced a production increase of over 400,000 barrels per day starting in June with the Saudis warning that there may be more increases to come. These increases are mainly aimed at disciplining members who have been exceeding their quotas.
Our Take: Oil prices are now being pressured both by concerns around demand as a result of U.S. trade policy changes as well as by increased supply from Saudi Arabia.
MUNICIPALS
California officials warned that tourism revenue from foreign visitors could drop by over 9%. Visit California, a nonprofit organization, expects overall tourism revenue to decrease by $6 billion. The organization predicts a 20% drop in tourists from Canada and a 12% drop in tourists from Mexico. Domestic tourist visits are expected to remain flat.
Our Take: A decrease in tourism revenue is likely to affect many different parts of California’s economy. In response, Governor Gavin Newsom has announced a marketing campaign which targets Canadians and encourages them to visit the state. While some blame the current administration’s tariff and trade policy for the tourism decline from Mexico and Canada, the current exchange rate could also be a factor for Canadian tourists. The Canadian dollar is around $0.72 to the U.S. dollar.