May’s Market Mood: Inflation Clouds, Trade Crosswinds, and Fed Watch

As we wade into May, the economic climate feels a bit like trying to mow your lawn under two feet of water—slow, murky, and full of hidden obstacles. While equity markets remained relatively flat last week, the deeper story lies beneath the surface, where mixed signals from the Federal Reserve, confusing trade policy, and inflation pressures are muddying forecasts.

📉 Fed Holds Steady—But For How Long?

• Rates unchanged again: For the third consecutive meeting, the Fed left rates untouched at 4.33%.
• Shift in tone: While inflation remains a concern, the Fed is now acknowledging increased risks to both employment and inflation.
• Rate cuts ahead? The Fed’s “dot plot” projects two rate cuts this year, with the bond market betting on three—starting in July.
• What’s next: The Fed is watching closely. A strong labor market (unemployment at 4.2%) gives them breathing room, but deteriorating demand may force their hand.

If you missed our complimentary State of Freight Economic Outlook webinar, you can catch the replay here.  Economist Bill Witte and FTR experts Avery Vise and Jonathan Starks decode the latest economic signals and what they mean for freight. In a time of uncertainty, this is the clarity your business needs. WATCH THE REPLAY!!! 

⚖️ Trade Policy: A Confidence Killer

The U.S. trade deficit jumped 14% in March to a record $145.5 billion, driven by a rush of imports in the first quarter as businesses scrambled to secure goods—especially autos, computers, and pharmaceuticals—before new tariffs took hold. While there’s no definitive data showing these policies are hurting the economy, supply chains are clearly under pressure, and business planning has become increasingly difficult. More troubling is the growing global distrust in U.S. trade commitments. As world leaders watch trade policies shift on a dime, confidence is slipping, weakening U.S. credibility and adding strain to the dollar.

🏢 Service Sector Sluggish, Still Standing

• ISM Services Index: Rose to 51.6 in April, just above contraction territory.
• Labor still soft: Employment within services remains below 50, signaling ongoing caution.
• Business activity down: While the sector isn’t contracting, it's not firing on all cylinders either.
  

🔍 Key Data to Watch This Week

• CPI and PPI figures will help confirm whether March’s inflation dip was a fluke.
• Retail sales remain a key indicator of consumer strength amid uncertainty.
• Industrial production faces near-term softness due to pre-tariff inventory builds.

🎯 Strategic Insight

The economic narrative in May is less about what has happened and more about what might happen next. With monetary policy at an inflection point, trade uncertainty threatening confidence, and inflation trends in flux, the next few months will set the tone for the second half of 2025.

Bottom Line:
Stay nimble. Watch the Fed. Track inflation data closely. And if you’re feeling like you're mowing the lawn underwater—you’re not alone.

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