Weekly Market Commentary May 12, 2025
Last week was pivotal for market analysts, despite the lower volume of reports. The week was front-loaded with significant data providing crucial insights into various market sectors.
The biggest headline was the Federal Reserve's decision to keep the federal funds rate at 4.25% to 4.5%, as expected. Despite solid economic activity and a stable labor market, inflation remains above the Fed’s 2% target. The Fed continues to be data-dependent and cautious, closely monitoring the risks of higher unemployment and inflation. It also confirmed the continued reduction of its Treasury securities and agency debt holdings.
Several noteworthy reports on employment and inflation were released. Thursday’s Q1 2025 Nonfarm Productivity report, measuring labor efficiency, fell short of expectations at -0.8% versus an expected -0.4%, significantly below the prior quarter’s 1.7%. The Unit Labor Costs report indicated increasing inflation pressures, with a 5.7% quarter-over-quarter rise compared to the previous quarter’s 2.0%. Together, these reports highlight the growing inflationary pressures within the economy.
Despite these disappointing numbers, the labor market showed strength with both Continuing Jobless Claims and Initial Jobless Claims beating expectations. This trend was supported by the prior week's Nonfarm payroll numbers. The 3-year and 10-year Notes auctions provided further insight into the bond market’s view of inflation. Three-year yields increased, indicating higher inflation expectations, while the 10-year Treasury yield decreased, suggesting this trend may not persist long-term.
Finally, ISM Non-Manufacturing data released on Monday showed higher-than-expected employment and Purchasing Managers’ Index (PMI) sentiment data points. However, Non-Manufacturing Prices data reflected growing inflationary pressures. As these reports illustrate, inflation remains a central concern, influencing both market expectations and Federal Reserve policies.
Click HERE to read more.