Phrase of the Week: Cautiously Optimistic

Despite some important economic news released this week, markets are only looking to the constant news releases about the Iran conflict. It was reported that a Memorandum of Understanding (MOU) was received by the US from Iran that contains a 60-day ceasefire and 10 points of agreement.  

Markets are being “cautiously optimistic” about the possibility of peace, the opening of the Strait of Hormuz, and lower energy prices. As a result, rates have been slightly improving. West Texas Intermediate (crude oil) prices have broken beneath $90/barrel and are trading near $87. If the agreement is signed, expect that markets will continue the improvement. 

New Home Sales Miss Expectations 

New Home Sales, measuring signed contracts on new homes, fell 6.2% in April to a seasonally adjusted rate of 622,000 annually. It was definitely weaker than expected but it was worsened by a downward revision to March.   

GDP Revision Signals Slower Growth 

The second look at Q1 Gross Domestic Product (GDP) showed weakening in the economy. It fell from 2% to 1.6%. This covers only Q1 2026 (January through March) and shows the economy was already slowing prior to the beginning of the Iran conflict. Economists estimate that almost half of GDP is due to buildout from AI infrastructure. This means other sectors are doing poorly. 

PCE Inflation Comes in Tame 

The Fed’s favorite inflation measure, Personal Consumption Expenditures (PCE), was released for April. It was thankfully pretty tame. Headline inflation rose 0.4% for the month, lower than expected.  

Yearly, headline PCE rose from 3.5% to 3.8%, as the markets expected. Core PCE (stripping out volatile food and energy prices) rose 0.2%, also less than expected. Yearly, Core PCE rose from 3.2% to 3.3%, as expected. This allowed rates the freedom to continue to improve. 

Trimmed Mean PCE Shows Progress 

The new Fed Chairman, Kevin Warsh, has stated his preference for the Dallas Fed’s Trimmed Mean PCE. This came in annually for April at 2.3%. This is a much nicer inflation number than the 3.3% Core PCE headline. 

Looking Ahead: Next Week’s Key Reports 

Next week is June and another Bureau of Labor Statistics (BLS) Jobs report: 

Tuesday: JOLTS 

Wednesday: ADP Employment Report, Fed Beige Book 

Thursday: Challenger Job Cuts, Productivity/Unit Labor Costs 

Friday: BLS Jobs Report