As expected, the Federal Reserve cut the federal funds rate 50 basis points Tuesday. A sharp drop in apparel prices offset increases in energy items, tobacco, and recreation. The downward revision of retail sales, weak business inventories, and widening trade gap are the primary reasons.
Financial markets seem to believe the danger of recession is over.
Initial claims dropped for the second consecutive week, to 380,000 in the week ended May 12, below the 400K threshold for the second consecutive week. Congress has stalled on the tax bill. Procedural problems between the House and Senate are delaying sending the bill to conference committee. We still expect a bill similar to the senate bill to pass, but it could be delayed more than we expect The energy crisis remains in the headlines, but the focus has shifted. The Fed rate cut was widely expected.