Evelyn Reynolds

Treasury Secretary Janet Yellen on Thursday said the swelling national debt is manageable as long as it stays around where it is relative to the rest of the economy.
In a CNBC interview, Yellen also noted that high interest rates are adding to the burden as the U.S. manages its massive $34.7 trillion debt load.

“If the debt is stabilized relative to the size of the economy, we’re in a reasonable place,” she told CNBC’s Andrew Ross Sorkin during a “Squawk Box” live interview. “The way I look at it is that we should be looking at the real interest cost of the debt. That’s really what the burden is.”
During the 2024 fiscal year, net interest costs on the debt have totaled $601 billion — more than the government has spent on health care or defense and more than four times what it has laid out for education.
Multiple Congressional Budget Office reports have warned about the soaring costs of debt and deficits, cautioning that over the next decade the public share of the national debt — currently about $27.6 trillion — will hit a new record as a share of the total economy over the next decade.
The public share of the national debt as a share of GDP is running at about 97% but is expected to soon top 100% at current spending rates.
Yellen touted President Joe Biden’s plans to manage the situation.

“In the budget the president presented for this coming fiscal year he proposes $3 trillion of deficit reduction over the next decade,” she said. “That’s sufficient to basically keep the debt to income ratio stable, and this interest burden would be stabilized.”
The budget deficit for 2024 is running at $1.2 trillion with four months left in the fiscal year. In 2023, the shortfall totaled $1.7 trillion.
The rising financing costs for the debt have come as the Federal Reserve pushed interest rates higher to bring down an inflation rate that had hit its highest level in more than 40 years in mid-2022. Inflation since has pulled back, but the Fed has held benchmark rates higher as it awaits more evidence that the rate of price increases is moving convincingly back to the central bank’s 2% target.
Following its policy meeting this week, the Fed said it has seen “modest” progress on inflation but is not ready to start reducing rates. Yellen, a former Fed chair, declined to comment on the central bank’s actions. More

The consumer price index held flat in May though it increased 3.3% from a year ago. Both numbers were 0.1 percentage point below market expectations.
Excluding volatile food and energy prices, core CPI increased 0.2% on the month and 3.4% from a year ago, compared to respective estimates of 0.3% and 3.5%.
Price increases were held in check by a 2% drop in the energy index and just a 0.1% increase in food.

The consumer price index showed no increase in May as inflation slightly loosened its stubborn grip on the U.S. economy, the Labor Department reported Wednesday.
CPI, a broad inflation gauge that measures a basket of goods and services costs across the U.S. economy, held flat on the month though it increased 3.3% from a year ago, according to the department’s Bureau of Labor Statistics.

Economists surveyed by Dow Jones had been looking for a 0.1% monthly gain and a 3.4% annual rate.
Excluding volatile food and energy prices, core CPI increased 0.2% on the month and 3.4% from a year ago, compared to respective estimates of 0.3% and 3.5%.

Following the report, stock market futures pushed higher while Treasury yields slid.
Though the top-line inflation numbers were lower for both the all-items and core measures, shelter inflation increased 0.4% on the month and was up 5.4% from a year ago. Housing-related numbers have been a sticking point in the Federal Reserve’s inflation battle and make up a heavy share of the CPI weighting.
Price increases were held in check, though, by a 2% drop in the energy index and just a 0.1% increase in food. Within the energy component, gas prices tumbled 3.6%. Another nettlesome inflation component, motor vehicle insurance, saw a 0.1% monthly decline though still up more than 20% on an annual basis.

“Finally, some positive surprises as both headline and core inflation beat forecasts,” said Robert Frick, corporate economist with Navy Federal Credit Union. “There was relief at the pump, but unfortunately home and apartment costs continue to rise and remain the main cause of inflation. Until those shelter costs begin their long-awaited fall, we won’t see major drops in CPI.”
The release comes at an important juncture for the economy as the Federal Reserve weighs its next moves on monetary policy, which will be based heavily on where inflation is heading.
Later Wednesday, the rate-setting Federal Open Market Committee will wrap up its two-day policy meeting. Markets widely expect the Fed to keep its benchmark overnight borrowing rate targeted in a range of 5.25%-5.5%, but will be looking for clues about where the central bank is heading.
Following the CPI release, futures traders upped the chances of the Fed cutting in September, which would be the first move lower since the early days of the Covid pandemic. However, the market outlook has been volatile, and Fed officials have stressed that they need to see more than a month or two of positive data before easing policy.
“You’re going to need three more months of very friendly inflation data to cut” in September, said Joseph LaVorgna, chief economist at SMBC Nikko Securities. “If they start easing or talk about easing more, I think they’re going to complicate their own their own goals of getting inflation back to 2%.”
Durable inflation has kept the Fed on the sidelines since it last hiked rates in July 2023. At the March meeting, FOMC members indicated the likelihood that they could rate cuts three times this year for a total of 0.75 percentage point, but they are expected to amend that down to either two or even just one reduction.
In addition, committee members will update their projections on gross domestic product growth as well as inflation and unemployment, all of which could be influenced by the CPI numbers. Economists expect the Fed to raise its projections for inflation and lower the outlook for broad economic growth as reflected by GDP.
Though the Fed doesn’t use CPI as its main inflation indicator, it still figures into the calculus. Policymakers focus more on the Commerce Department’s personal consumption expenditures price index, a broader gauge that takes into account changes in consumer behavior. More

U.K. economic growth ground to a halt in April, according to flash figures published on Wednesday, stalling the muted rebound from last year’s recession continued.
The print came in line with the expectations of economists polled by Reuters.
Construction output declined 1.4% in its third straight fall.

New high rise tower blocks under construction and old towers in Rotherhithe and beyond to Bermodsey seen over the River Thames on 16th January 2024 in London, United Kingdom.
Mike Kemp | In Pictures | Getty Images

LONDON — U.K. economic growth ground to a halt in April, according to flash figures published on Wednesday, stalling the muted rebound from last year’s recession mere weeks ahead of a national election.
Economists polled by Reuters had expected growth to flatten, after the economy expanded by 0.4% in March.

The picture was slightly brighter on a longer timeframe, with gross domestic product up 0.7% in the three months to April.
Construction output declined 1.4% in its third straight fall, while production output was down 0.9%. Growth continued in the U.K.’s dominant services sector, which expanded by 0.2%.
The U.K. had already eked out moderate growth in each of the first three months of the year, leading to an exit from a shallow recession for the first quarter as a whole.
Lindsay James, investment strategist at Quilter Investors, attributed the April slowdown to recent gloomy weather.
“Persistent rain has kept consumers from spending,” James said in an emailed note.

“Whilst the weather has thankfully improved of late, likely boosting May’s reading, the second quarter is off to a slow start and has a lot of catching up to do if it is to match the 0.6% growth seen in the first quarter.”

Rate cut outlook

The quarterly growth reported last month had fueled bets on the Bank of England beginning interest rate cuts in June, but market expectations have shifted significantly since then.
The Bank of England meets to decide the next steps of its monetary policy on June 20. Traders see little chance of a rate cut announcement this month, instead looking toward August or September.
Labor data released on Tuesday showed U.K. unemployment unexpectedly rose to its highest level in two and a half years, while wage growth came in at a higher-than-expected 6%, presenting a mixed picture for monetary policymakers.

Figures also published on Wednesday showed the U.K.’s value of goods imports increased by 8.2% in April, as the value of exports was flat.
The fresh economic data could serve as political ammunition as the country heads for a general election in just over three weeks. The economic record of the incumbent Conservative Party and its rival Labour’s proposed tax and spend plans are key battlegrounds of the campaign. Prime Minister Rishi Sunak has highlighted the recent fall in U.K. inflation in speeches.
George Roberts, head of dealing at Ebury, said that the trade figures would come as a blow to Sunak, as he strives to get U.K. exporters on side after a “challenging few years.”
“The financial challenges faced by exporters since Brexit, the Covid-19 pandemic, and the Ukraine war seem to have stuck despite the government’s efforts to push for non-EU trade deals like the [Comprehensive and Progressive Agreement for Trans-Pacific Partnership] and more recently with Texas,” Roberts said by email.
Labour’s economy spokeswoman Rachel Reeves said, in the wake of the Wednesday data: “Rishi Sunak claims we have turned a corner, but the economy has stalled and there is no growth. More

Wednesday features a one-two punch of news that starts in the morning with the pivotal consumer price index reading for May, and ends with the Fed’s policy meeting in the afternoon.
Economists expect CPI to show just a 0.1% increase from April, though that still would equate to an aggregate annual rise of 3.4%. Core PCI is projected to show a 0.3% monthly gain and a 3.5% annual rate.
When it comes to interest rates, the Fed will do nothing. However, officials will offer a variety of economic forecasting updates that will include the central bank’s much-watched “dot plot” of interest rate expectations.

Jerome Powell, Chairman of the U.S. Federal Reserve, speaks during the conference celebrating the Centennial of the Division of Research and Statistics, Board of Governors of the Federal Reserve System in Washington D.C., United States on November 08, 2023. (Photo by Celal Gunes/Anadolu via Getty Images)
Celal Gunes | Anadolu | Getty Images

Wednesday is shaping up to be one of the most important days of the year for economic news, as investors will hear about the path of inflation and the manner in which the Federal Reserve plans to react.
In a one-two punch that starts in the morning with the pivotal consumer price index reading for May and ends with the Fed’s policy meeting in the afternoon, vital signals will be sent about the direction of the economy and whether policymakers can soon take their foot off the brake.

The day “packs months of macro risk into one day,” wrote UBS economist Jonathan Pingle.
Like many others on Wall Street, Pingle expects the CPI report, combined with last Friday’s surprisingly strong nonfarm payrolls reading and other recent data releases to lead Fed officials to tinker with their outlook for inflation, economic growth and interest rates.
Optimists are hoping that the moves fall largely within the realm of expected outcomes and don’t do much to rattle the frayed nerves of market participants.
“While both typically have proven to be market-moving events, we expect very little fireworks from both releases given our expectations for rather benign outcomes,” said Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers.
In broad strokes, here are anticipated outcomes of both events.

CPI inflation

The measure of how much a broad basket of goods and services cost consumers in May is expected to show little month-over-month movement — just a 0.1% increase from April, though that still would equate to an aggregate annual rise of 3.4%.
Excluding food and energy prices, the so-called core PCI is projected to show a 0.3% monthly gain and a 3.5% annual rate.
None of those numbers are dramatically different from the April readings, and still show inflation running well above the Fed’s 2% target. Still, some economists say that a look under the hood at various important metrics such as insurance costs and core services excluding housing will show that inflation at least is trending in the right direction, albeit incrementally.
“On the inflation front, expect more of the same – continued evidence that the broader disinflationary trend is still intact and that the stickier first quarter data was simply a pause in a downtrend,” Janasiewicz said.
One important point about the CPI: while it gets a lot of focus from both the investing and general public, it is not the main metric the Fed uses. Central bankers prefer the Commerce Department’s measure of personal consumption expenditures prices, a broader measure that also accounts for changes in consumer behavior.
The Bureau of Labor Statistics is scheduled to release the CPI report at 8:30 a.m. ET on Wednesday.

The Fed meeting

While the BLS is disseminating the CPI report, the rate-setting Federal Open Market Committee members will be finalizing their projections for inflation, gross domestic product and unemployment as well as indicating the expected rate path through 2026 and beyond.
First and foremost, when it comes to interest rates, the Fed will do … nothing. Both market pricing and rhetoric from policymakers point to virtually no chance of a move either way on interest rates, with the central bank keeping its benchmark overnight borrowing rate in a range between 5.25%-5.50%.
Instead, officials will take other action that markets will be watching closely.
FOMC members will release quarterly updates to their Summary of Economic Projections, which could be influenced by the CPI report. While meeting participants usually submit their estimates early Wednesday, the 19 meeting participants generally are allowed a little extra time to account for incoming data.
The informal consensus in market commentary is that the Fed will adjust the path of its pivotal “dot plot” upward. The impact of that would mean the grid likely will point to fewer than the three interest rate cuts indicated for 2024 in March, toward a path that most economists expect to show two reductions, though there is some worry the outlook could shrink to just one.
Should the Fed signal one cut, that likely means the Fed wouldn’t act until November or December, UBS’ Pingle said.
Goldman Sachs economists expect two rate cuts, with the first coming in September. Others differ, though, with Bank of America calling for one and Citigroup looking for a possible three, though it expects the dot plot to indicate two.
“Our conviction remains limited because we continue to see cuts as optional, the inflation news we expect would make a decision to cut reasonable but not obvious, and FOMC participants have a range of views,” wrote Goldman economist David Mericle.
Economists also expect the Fed to reduce its outlook for gross domestic product growth and raise the expected inflation level from March’s projections.
Other significant Fed developments include the post-meeting statement as well as Chair Jerome Powell’s news conference afterward.
“We do not expect any significant changes to the FOMC statement or Chair Powell’s message at the June meeting. The most notable theme of Powell’s last press conference in May was his pushback against possible rate hikes, but talk of hikes has died down in markets since then,” Mericle said.
Indeed, only a few Fed officials in their public commentary have mentioned the possibility of raising rates further.
However, the market has had to dramatically reprice its expectations from earlier in 2024 when traders expected six cuts this year.
The recent economic data, likely to be echoed by Wednesday’s CPI report, point to an evolving economy where higher for longer on rates is being treated as a much greater possibility. The payrolls report Friday, for instance, showed wages growing at a 4.1% annual clip, well above what the Fed would like to see.
“A still-growing U.S. economy is keeping wage growth stubbornly above the Fed’s unofficial target of 3.3 percent,” wrote Nicholas Colas, co-founder of DataTrek Research. “Unless economic growth cools, it is hard to see a pathway to anything more than a token Fed rate cut in 2024.”

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