The municipal bond market watched and waited on Monday as President Trump lamented his lack of control over monetary policy even data showed the economy humming along.
Trump complained in CNBC TV interview that the Fed doesn’t “listen” to him and contrasted that the control that China’s leader wields over its central bank. “The head of the Fed in China is [President Xi Jinping ],” Trump was quoted by Bloomberg news as telling CNBC. “He can do whatever he wants. They devalue. They loosen” policy to help offset the burden of tariffs, he said. The People’s Bank of China lacks independence since the Chinese President must approve any major PBOC decision.
Next week, the Federal Open Market Committee meets for a two-day gathering in Washington to decide on monetary policy. It will announce its decision on interest rates on June 19.
Last week, Fed Chairman Jerome Powell hinted that the Fed may cut rates if trade worries cause U.S. businesses to cut back on investment and hiring. On Friday, a weak employment report spurred market speculation that the fed might cut rates sooner rather than later.
Even as trade tensions between the U.S. and China grow, it looks like the “risk-off” mode has ended for now, after Powell signaled the Fed is prepared to cut rates if needed, according to a Monday market comment from BofA Securities.
“BofA Merrill Lynch economists and rates strategists are now calling for three Fed cuts with the first to come in September,” Yingchen Li, BofA municipal research strategist wrote. “This is somewhat consistent with what the Fed funds futures market implies, though the two differ on the first cut’s timing, with the Fed Funds futures implying a 67.3% probability of a July rate cut.”
On Sunday, Trump accepted Mexico’s offer of a tougher immigration policy and said he would not impose a 5% charge on all Mexican goods.
On the data side Monday, the market was looking at a new employment report and a survey on consumer inflation expectations.
The Labor Department said non-farm payrolls rose 75,000 in May, far below the 183,000 expected by economists polled by IFR Markets. The unemployment rate held at 3.6%. On Monday, Labor reported that the number of job openings was little changed in April.
On the last business day of April, the job openings rate was 7.4 million, or 4.7%, with the number of jobs being offered little changed for the private and government sectors, according to the job openings and labor turnover survey. The number of job openings was little changed in all four regions of the U.S.
The number of hires rose 240,000 to 5.9 million with the hires rate hitting 3.9%. The hires level edged up for total private jobs and was little changed for government. Over the month, separations were little changed at 5.6 million. The total separations rate was 3.7%. Within the separations category, the quits rate was unchanged at 2.3% and the layoffs and discharges rate was little changed at 1.2%.
Separations includes quits, layoffs and discharges. Quits are generally voluntary separations initiated by the employee. The quits rate can serve as a measure of workers’ willingness or ability to leave jobs. Layoffs and discharges are involuntary separations initiated by the employer. Other separations includes separations due to retirement, death, disability, and transfers to other locations of the same firm.
“Over the 12 months ending in April, hires totaled 69.6 million and separations totaled 66.8 million, yielding a net employment gain of 2.8 million,” the Labor Department said. “These totals include workers who may have been hired and separated more than once during the year.”
Meanwhile, consumers are generally feeling more confident about short- and medium- term inflation, according to the Federal Reserve Bank of New York’s Center for Microeconomic Data. The New York Fed said Monday that median inflation expectations by households in May fell 0.1% in the one-year and three-year time horizons to 2.5% and 2.6%, respectively. They were the lowest readings since late 2017.
However, median inflation uncertainty, or the uncertainty expressed regarding future inflation outcomes, increased for the one-year and three-year time horizons.
“Households were generally less positive about their current and future financial situation even though their average earnings growth and job finding expectations improved,” the Fed said. “Consumers see an increase in the average interest rate on savings accounts over the next year as less likely, with its average likelihood declining to the lowest level since October 2016.”
Median expected household income growth dipped to 2.8% in May from 2.9% in April, the Fed said. The decline was driven by respondents without a college degree. Median household spending growth expectations increased to 3.5% in May from 3.3% in April. Median home price change expectations in May were stable for the sixth month in a row at 3.0%. The median expectation regarding year-ahead change in taxes rose slightly to 3.0%, the highest reading since October 2016.
Expectations for change in the cost of a college education declined to 5.9% in May from 7.2% in April, while the median one-year ahead expected change in the cost of medical care increased to 8.0% from 7.8%. This was the third straight monthly rise in the expected change in the cost of medical care.
The survey is a nationally representative, internet-based survey of a rotating panel of about 1,300 household heads. Respondents participate in the panel for up to 12 months, with a roughly equal number rotating in and out of the panel each month.