Evelyn Reynolds

Inflation barely budged in April as tariffs President Donald Trump implemented in the early part of the month had yet to show up in consumer prices, the Commerce Department reported Friday.
The personal consumption expenditures price index, the Federal Reserve’s key inflation measure, increased just 0.1% for the month, putting the annual inflation rate at 2.1%. The monthly reading was in line with the Dow Jones consensus forecast while the annual level was 0.1 percentage point lower.

Excluding food and energy, the core reading that tends to get even greater focus from Fed policymakers showed readings of 0.1% and 2.5%, against respective estimates of 0.1% and 2.6%.
Consumer spending, though, slowed sharply for the month, posting just a 0.2% increase, in line with the consensus but slower than the 0.7% rate in March. A more cautious consumer mood also was reflected in the personal savings rate, which jumped to 4.9%, up from 0.6 percentage point in March to the highest level in nearly a year.
Personal income surged 0.8%, a slight increase from the prior month but well ahead of the forecast for 0.3%.
Markets showed little reaction to the news, with stock futures continuing to point lower and Treasury yields mixed.

People shop at a grocery store in Brooklyn on May 13, 2025 in New York City.
Spencer Platt | Getty Images

Trump has been pushing the Fed to lower its key interest rate as inflation has continued to gravitate back to the central bank’s 2% target. However, policymakers have been hesitant to move as they await the longer-term impacts of the president’s trade policy.

On Thursday, Trump and Fed Chair Jerome Powell held their first face-to-face meeting since the president started his second term. However, a Fed statement indicated the future path of monetary policy was not discussed and stressed that decisions would be made free of political considerations.
Trump slapped across-the-board 10% duties on all U.S. imports, part of an effort to even out a trading landscape in which the U.S. ran a record $140.5 billion deficit in March. In addition to the general tariffs, Trump launched selective reciprocal tariffs much higher than the 10% general charge.
Since then, though, Trump has backed off the more severe tariffs in favor of a 90-day negotiating period with the affected countries. Earlier this week, an international court struck down the tariffs, saying Trump exceeded his authority and didn’t prove that national security was threatened by the trade issues.
Then in the latest installment of the drama, an appeals court allowed a White House effort for a temporary stay of the order from the U.S. Court of International Trade.
Economists worry that tariffs could spark another round of inflation, though the historical record shows that their impact is often minimal.
At their policy meeting earlier this month, Fed officials also expressed worry about potential tariff inflation, particularly at a time when concerns are rising about the labor market. Higher prices and slower economic growth can yield stagflation, a phenomenon the U.S. hasn’t seen since the early 1980s. More

Kevin Hassett, director of the National Economic Council, said he fully believes the administration’s efforts to use tariffs to ensure fair trade are perfectly legal and will resume soon.
The comments follow a ruling from judges on the Court of International Trade who said Trump exceeded his authority on tariffs.

National Economic Council Director Kevin Hassett speaks to reporters at the White House in Washington, D.C., U.S., April 14, 2025. 
Kevin Lamarque | Reuters

A top economic advisor to President Donald Trump expressed confidence Thursday that court rulings throwing out aggressive tariffs will be overturned on appeal.
Kevin Hassett, director of the National Economic Council, said in an interview that he fully believes the administration’s efforts to use tariffs to ensure fair trade are perfectly legal and will resume soon.

“We’re right that America has been mishandled by other governments,” Hassett said during a Fox Business interview. “This trade negotiation season has been really, really effective for the American people.”
The comments follow a ruling from judges on the Court of International Trade who said Trump exceeded his authority on tariffs, which are aimed both at combating barriers against American goods abroad and stemming the flow of fentanyl across the U.S. border.
While the Centers for Disease Control and Prevention has said that fentanyl is the primary driver in domestic overdose deaths, the judges ruled that related tariffs “fail because they do not deal with the threats set forth in those orders.”
Hassett bristled at the ruling and said the administration will continue its anti-fentanyl efforts.
“These activist judges are trying to slow down something right in the middle of really important negotiations,” he said. “The idea that the fentanyl crisis in America is not an emergency is so appalling to me that I am sure that when we appeal, this decision will be overturned.”

The administration has multiple options to get around the judges’ ruling, including other sections of trade laws it can utilize. However, Hassett said that’s not the plan at the moment.
“The fact is that there are measures that we can take with different numbers that we can start right now. There are different approaches that would take a couple of months to put these in place,” he said. “We’re not planning to pursue those right now, because we’re very very confident that this ruling is incorrect.”

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The cost of insuring exposure to U.S. government debt has been rising.
Investors are pricing in the increased concerns around the unresolved debt ceiling, several industry watchers said.
The surge in CDS prices is likely a “short-lived” reaction while traders wait for a new budget deal to raise the debt limit.

Traders work on the floor of the New York Stock Exchange (NYSE) at the opening bell on May 27, 2025, in New York City.
Timothy A. Clary | Afp | Getty Images

Investors are getting nervous the U.S. government might struggle to pay its debt — and they are snapping up insurance in case it defaults.
The cost of insuring exposure to U.S. government debt has been rising steadily and is hovering near its highest level in two years, according to LSEG data.

Spreads or premiums on U.S. 1-year credit default swaps were up at 52 basis points as of Wednesday from 16 basis points at the start of this year, LSEG data showed.
Credit default swaps are like insurance for investors. Buyers pay a fee to protect themselves in case the borrower — in this case the U.S. government — can’t repay their debt. When the cost of insuring the U.S. debt goes up, it’s a sign that investors are getting nervous.
Spreads on the CDS with 5-year tenor were at nearly 50 basis points compared with about 30 basis points at the start of the year. In a CDS contract, the buyer pays a recurring premium known as the spread to the seller. If a borrower, in this case, the U.S. government defaults on its debt, the seller must compensate the buyer.

CDS prices reflect how risky a borrower seems and are used to guard against signs of financial trouble, not just a full-blown default, said Rong Ren Goh, portfolio manager in Eastspring Investments’ fixed income team.
The recent surge in demand for CDS contracts is a “hedge against political risk, not insolvency,” said Goh, underscoring the broader anxiety about U.S. fiscal policy and “political dysfunction,” rather than a market view that the government is verging on failing to meet its obligation.

Investors are pricing in the increased concerns around the unresolved debt ceiling, several industry watchers said.
“The credit default swaps have become popular again as the debt ceiling remains unresolved,” said Freddy Wong, head of Asia Pacific at Invesco fixed income, pointing out that the U.S. Treasury has reached the statutory debt limit in January 2025.
The Congressional Budget Office said in a March notice that the Treasury had already reached the current debt limit of $36.1 trillion and had no room to borrow, “other than to replace maturing debt.”
Treasury Secretary Scott Bessent said earlier this month that his department was tallying the federal tax receipts collected around April 15 filing deadline to come up with a more precise forecast for the so-called “X-date,” referring to when the U.S. government will exhaust its borrowing capacity.
Data from Morningstar shows that spikes in CDS spreads on U.S. government debt have typically aligned with periods of heightened worries around U.S. government’s debt limit, particularly in 2011, 2013 and in 2023.
Wong pointed out that there are still several months before the U.S. reaches the X-date.
The U.S. House of Representatives has passed a major tax cut package which could reportedly see the debt ceiling raised by $4 trillion, pending approval from the Senate.
In a May 9 letter, Bessent urged congressional leaders to extend the debt ceiling by July, before Congress leaves for its annual August recess, in order to avert economic calamity, but warned “significant uncertainty” in the exact date.
“There is still enough time for the Senate to pass its version of the bill by late July to avoid a technical default in U.S. Treasury,” added Wong.
During the debt ceiling crisis in 2023, the U.S. Congress passed a bill suspending the debt ceiling just days before the U.S. government entered into a technical default.
In the past, the U.S. has come dangerously close to a default but in each case, Congress acted last minute to raise or suspend the ceiling.

Fiscal reckoning

The surge in CDS prices is likely a “short-lived” reaction while investors wait for a new budget deal to raise the debt limit. It is unlikely a sign of an impending financial crisis, according to industry watchers.
During the 2008 financial meltdown, institutions and investors actively traded CDS linked to mortgage-backed securities, many of which were filled with high-risk subprime loans. When mortgage defaults soared, these securities plummeted in value, resulting in enormous CDS payout obligations.
However, the implications for soaring demand for sovereign CDS are very different compared to demand for corporate CDS which was the case in 2008, where investors were making an actual call about growing default risk at corporations, said Spencer Hakimian, founder of Tolou Capital Management.
“Traders seem to believe that CDS provides a speculative instrument for betting on a government debt crisis, which I view as extremely unlikely,” said Ed Yardeni, president of Yardeni Research, who added that the the U.S. will “always prioritize” paying interest on its debt.
“The U.S. government won’t default on its debt. The fear that it might do so is not justified,” he told CNBC.
Moody’s earlier this month downgraded the U.S. sovereign credit rating to Aa1 from Aaa, citing the government’s deteriorating fiscal health. 
Should the Senate pass the bill in time, the massive ceiling increase will push up the Treasury supply, putting the U.S. fiscal deficit condition back in the spotlight, Wong warned. More

Elon Musk said the “big, beautiful bill” will not help the nation’s finances, in an interview to be aired on “CBS Sunday Morning.”
“I think a bill can be big or it could be beautiful, but I don’t know if it could be both,” Musk said.

U.S. President Donald Trump and Tesla CEO Elon Musk, alongside Musk’s son X Æ A-Xii, speak to the press as they stand next to a Tesla vehicle on the South Portico of the White House in Washington, D.C., on March 11, 2025.
Mandel Ngan | AFP | Getty Images

Elon Musk criticized the Republican spending bill that recently made it through a House vote, saying it counters the work he’s been doing to reduce wasteful government spending.
In an interview to be aired June 1 on “CBS Sunday Morning,” the richest man in the world and the head of the Department of Government Efficiency advisory board said the “big, beautiful bill” will not help the nation’s finances.

“I was, like, disappointed to see the massive spending bill, frankly, which increases the budget deficit, not just decrease it, and undermines the work that the DOGE team is doing,” Musk said in a clip the program shared on social media platform X.
DOGE says it has saved $170 billion in taxpayer money since it began in January, targeting areas of government waste and redundancy in sometimes-controversial ways.
For instance, it has gutted the U.S. Agency for International Development and reduced staff elsewhere. DOGE-related moves have been responsible for some 275,000 government layoffs, according to Challenger, Gray & Christmas, a consultancy firm.
The sweeping One Big Beautiful Bill Act by contrast, is projected to raise the federal budget deficit by $3.8 trillion over the next 10 years, according to the Congressional Budget Office. The deficit is on track in 2025 to run close to $2 trillion, with the national debt now at $36.2 trillion.
“I think a bill can be big or it could be beautiful, but I don’t know if it could be both,” Musk said in the clip.

Trump and congressional Republicans counter that the bill reduces spending in key areas and will generate enough growth to compensate for the tax reductions. The legislation, though, is expected to face strong resistance in the Senate.
For his part, Musk has pulled back his DOGE work, saying he plans to focus on running his companies, which include X, Tesla and SpaceX. Musk had been a frequent presence in the White House since Trump’s election.
In an interview with The Washington Post published Tuesday, Musk said the federal bureaucracy is “much worse than I realized” and that DOGE became “the whipping boy for everything.” More