Stay up to date on the latest market news with daily analysis of the investing landscape, served up Brew-style.

Brew Markets

Macro Economics

Lucy Brewster

brewmarkets.com

What’s the only announcement more exciting than the 

 dropping? Why, personal spending data, of course!

Personal Consumption Expenditures Price Index

, the Federal Reserve’s preferred inflation gauge, rose 0.1% in April and jumped 2.1% annually—only slightly above the Fed’s stated 2% goal. It also marks a slowdown from the 2.3% increase in March, and is the lowest print this year so far.

Core PCE, which excludes volatile food and energy prices, also rose 0.1% month over month and jumped 2.5% annually, cooler than the revised 2.7% increase in March and the smallest annual gain in four years.

Time to pop the champagne? Not so fast, according to the pros.

“Any summer celebration may be premature: a tariff-induced inflation storm is on the horizon,” explained EY-Parthenon Chief Economist Gregory Daco. “Indeed, the April data likely understate the scale of policy shifts to come. Customs duties suggest the effective tariff rate stood at around 5% in April—well below the announced average of 25%.”

Slowing prices wasn’t the only data we got today: The Bureau of Economic Analysis 

 that inflation-adjusted personal spending only rose 0.1% in April, a steep drop from the 0.7% increase the month prior.

Meanwhile, households saved up instead of splashing out: The personal savings rate jumped 0.6% to 4.9% in April, the biggest gain since last May.

 we’ve been seeing ever since President Trump unveiled that fateful poster board: People are freaked out by tariffs and subsequently turning down the volume on their spending.

 for Fed Chair Jerome Powell. The Fed can either raise rates to counteract signs of a 

—but risk stoking inflation. Or, the Fed could keep rates the same to combat prices that are rising 

, but then face the threat of a broader downturn if other pillars of the economy, such as labor, begin to weaken.

Powell’s decision gets even harder when you take into account how Trump is turning up the pressure. Just yesterday, Trump directly told Powell to 

 in a meeting, according to the White House. Powell demurred, stating that any decisions the Fed makes will be based on economic data.

“At some point the tariff uncertainty has to be addressed—and if it can be done quickly enough before damage is done to the economy, then there can be a resumption of the bull market and we can go back to all-time highs. However, if it takes too long to get clarity and the economy begins to stall, then the Fed will have no choice but to cut rates aggressively—so for those looking for rate cuts, be careful what you wish for,” warned Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management.

 that the Fed will keep rates steady at the FOMC’s next meeting in June.

We’re betting that all Powell wants to hear this summer is some peace and quiet.—

Inflation fell in April, but no easy answers for Fed

Inflation is getting closer to the Fed's 2% target, but the central bank has other issues.

Closing in on 2%

A US federal trade court just drew a big red X all over President Trump’s notorious Liberation Day poster board.

Last night, the Court of International Trade 

 that Trump had overstepped in rolling out sweeping, aggressive tariffs on, well, pretty much everyone. The court argued that Trump’s legal justification for the levies—the 1977 International Emergency Economic Powers Act—was wrongfully invoked, and gave the White House 10 days to end most of his tariffs on major trading partners.

But it looks like Trump will have longer than two business weeks to adjust his tariffs. The White House immediately appealed the ruling, and late this afternoon a federal appeals court granted the Trump administration’s request to 

—meaning that tariffs will stay in place during the appeal process, allowing the White House to continue trade negotiations unimpeded until a final ruling is made.

That may stop the case from going before the Supreme Court as soon as Friday, as the Trump administration was hoping, but it still casts plenty of doubt on the future of post-Liberation Day tariffs.

While this is a blow to Trump’s tariff strategy, the court’s ruling is more of a speed bump than a complete roadblock.

“Overall, we believe the court’s decision makes the imposition of tariffs more complex and may harm Washington’s negotiating position in trade talks, but the Trump administration is still able to impose significant and wide-ranging tariffs over the longer-term through other means,” explained CIO of Global Equities at UBS Ulrike Hoffmann-Burchardi in a note today.

Some duties will remain in place no matter which way the court’s ruling ends up going. Levies on steel, aluminum, and automobiles were enacted under the authority of a different act than the one the court said Trump overstepped, and there could still be more tariffs to come for pharmaceuticals and semiconductors. Goldman Sachs chief political economist Alec Phillips estimated that this ruling only strikes down about 6.7 percentage points of the tariff increases announced this year.

There are also an array of complex legal maneuvers the White House could use to double down on the levies, 

“As the administration can impose an across-the-board tariff and country-specific tariffs under other legal authorities (e.g., Sec. 122 and Sec. 301) this ruling represents a setback for the administration's tariff plans and increases uncertainty but might not change the final outcome for most major US trading partners,” Goldman Sachs chief economist Jan Hatzius wrote in a note to clients.

Today didn’t turn out to be the big buying opportunity many thought it was last night. “We expect further market volatility ahead as headlines on both trade and fiscal policy emerge in the weeks and months ahead. We still expect US equities to rise over the next 12 months, but near-term gains this year are likely to be more limited,” explained Hoffmann-Burchardi.—

Percent symbols and stock charts held back by court pillars

Court rules tariffs illegal, Trump appeals

Reciprocal tariffs may head for the Supreme Court as soon as Friday.

Are tariffs done for real?

Brew tunes illustration for Matty Merritt

Matty Merritt

The vibes right now in an indie stationery store couldn’t be more tense. Small businesses, from perfectly curated consumer-facing shops to niche valve makers you couldn’t name, are not feeling confident right now. Optimism 

 among businesses with fewer than 500 employees in April, according to a National Federation of Independent Business (NFIB) survey released last week.

Every month the NFIB asks small business owners about hard data like job openings and inventory as well as more vibes-based questions like expansion plans. Then, it creates an index to illustrate the economic conditions those businesses are navigating. The results?

April was the fourth consecutive month of falling optimism, dropping to 95.8. It was also the second month in a row that the index was below the 51-year average of 98.

More recently, the index has hovered between high 80s to low 90s from mid-2022 to last October. In December, it jumped to a four-year high of 105.1.

One of the biggest forces dragging the mood down since the start of the year is the business owners’ outlook on future business conditions, primarily uncertainty related to tariffs. While the 90-day pause on 145% Chinese import tariffs offered some business owners a chance to exhale, it doesn’t paint a clearer picture on how they can move forward.

Even though its diversified product offering will likely help it weather the storm, the world’s largest retailer Walmart 

 last week that it would have to raise some prices due to tariffs. Apple is shifting more iPhone production to India.

While massive publicly traded companies like those are rushing to pivot, tariffs could be deeply 

 for small businesses with a thinner catalog of products and a margin to match. And even if they could find a supplier in a country without massive tariffs that would take their smaller volume of orders, the uncertainty of trade decisions from President Trump’s desk feels like too much of a risk.

 If small businesses struggle, so will the rest of the economy. Not only do these companies make up 43.5% of the US GDP, companies with fewer than 250 employees accounted for nearly 

Small businesses are struggling with tariffs

Higher costs mean big problems for small companies.

Small businesses, big problems

Judy Dutton

Spring is typically when the housing market bursts into a frenzy of open houses and bidding wars. But 

Take mortgages: Although rates have been in a holding pattern for weeks, a 

 of the US’ credit rating caused bond yields to rise, and mortgage rates along with them. Rates for a 30-year fixed-rate home loan surpassed the dreaded 7% threshold on Monday and currently hover at 7.05%, according to Mortgage News Daily. Mortgage applications, which had been rising for weeks, abruptly 

 according to the Mortgage Bankers Association’s seasonally adjusted index released Wednesday.

Or how about the sorry state of home construction? Squeezed between tariff-induced price hikes on imported materials and an immigration crackdown draining the industry’s labor force, housing starts rose a mere 1.6% in April to an annual pace of 1.36 million. That’s down 25% from just three years ago, when builders were cranking out 1.83 million brand-new homes a year. Top homebuilders Lennar, DR Horton, and Toll Brothers all suffered 

 this spring, with Toll Brothers reporting a 3.5% drop in revenue last quarter earlier today.

Meanwhile, the existing-home market isn’t faring much better. Sales 

 in March to a seasonally adjusted annual rate of 4.02 million, according to the National Association of Realtors. Even stubbornly high home prices finally seem to be faltering, with Redfin reporting a 

 in April on a seasonally adjusted basis—the first month-over-month drop since September 2022. But is 0.1% enough to entice homebuyers off the sidelines? Doubt it.

All in all, the housing market’s getting walloped with a ton of crazy curveballs that would-be homebuyers can’t control. Even before tariffs hit the fan, homes were already insanely expensive—but under these latest stressors, cracks have appeared that point to serious problems in the housing market.

So, what does this all mean for housing during the rest of 2025? Although the number of homes for sale will likely continue to rise through the summer season before sloping downward toward fall, little consensus exists around the future of home prices. Some forecasters like Zillow are downright bearish, projecting that home prices 

 between March 2025 and March 2026. But other forecasts predict a 

, with both the National Association of Realtors and Wells Fargo anticipating a 3% increase in 2025.

Mortgage rate forecasts are equally murky. Although many analysts had expected that rates would 

, recent changes in the US credit rating may have thrown a wrench in that. All eyes remain on the Federal Reserve’s next meeting in mid-June. The CME FedWatch tool currently anticipates nearly a 

 that the Fed will hold rates steady, so relief in the form of a rate cut probably isn’t in the cards soon. That might mean this summer’s home-shopping season will continue to be a 

Did you enjoy this story about the housing market? Check out more of the same from our friend Judy over at The Playbook, Morning Brew's brand new real estate investing newsletter. 

The US housing market is in dire straights

Higher costs thanks to tariffs, higher mortgage rates thanks to bond yields.

The housing market can't catch a break

Mark Reeth

 last week, who knew it would be a precursor for the entire country?

Moody’s Ratings made waves late last Friday when the credit rating agency 

 from a perfect AAA to Aa1—a small demotion on the agency’s 21-notch rating scale that has big ramifications across international financial markets.

It was no coincidence that Moody’s made its decision the same day that President Trump’s “

” stalled in the House of Representatives. Moody’s estimated that the tax and spending bill would add about $4 trillion to the federal fiscal primary deficit over the next decade.

“As a result, we expect federal deficits to widen, reaching nearly 9% of GDP by 2035, up from 6.4% in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation,” Moody’s said in its press release. “We anticipate that the federal debt burden will rise to about 134% of GDP by 2035, compared to 98% in 2024.”

 last year and the deficit has already hit $1.05 trillion this year, while the government paid 

 in national debt last year—and has already paid $579 billion toward interest this year.

Or, put another way: Rising deficit + rising interest payments = the US’ finances aren’t as strong as they once were.

On paper, this is a big deal. One of the reasons the US is such an international financial powerhouse is that its credit is historically unimpeachable. Investors around the globe love to buy US bonds because they know the country is going to pay them back, and the US government uses the proceeds of those sales to fund, well, everything the US government funds.

A lower credit rating means investors are just a little less sure that their investment is secure, and any decline in confidence could translate to lower revenue for the government just when it needs the money.

In practice, it’s no biggie. Moody’s was the third and final credit rating agency to downgrade the US (S&P did it way back in 2011, Fitch made its cut in 2023), so the only surprise was how long it took Moody’s to join its colleagues. The US government’s massive debt burden is no state secret, and economists saw this one coming from a mile away.

Ah, in that case: It depends on your investments.

Bond traders can now demand a higher yield in order to offset the higher risk of US Treasuries. That’s a very real problem for President Trump, who has made it a stated goal to keep 10-year Treasury yields low for 

, including to help finance government debt.

 that swept through markets late last month could rear its head once again as foreign investors fade US credit and the value of the dollar sags. That may mean knock-on effects for equity investors as US stocks lose their appeal and declining sentiment contributes to a market slump. It’ll also likely lend more fuel to the gold rally of 2025 as traders search elsewhere for something completely secure to invest in.

Moody's downgrades US: What does it mean for investors?

Bond yields rose while stocks dropped today after the US' creditworthiness was downgraded by Moody's.

Imperfect

President Trump’s latest negotiating tactic may be to use the US dollar as a sacrificial lamb in order to lock in tariff deals.

The US Dollar Index, which measures the greenback against a basket of international currencies, initially fell today after

 that the White House and South Korea recently discussed exchange rate policy. The South Korean won and the Japanese yen both jumped against the US dollar as investor fears mount that Trump plans to purposely let the dollar fall against the won in order to work out a tariff deal.

For decades, the US dollar has been the dominant global currency. The mighty greenback has been the go-to for financial transactions, which enabled the US to borrow at lower interest rates, have more influence in the global economy and international bodies like the IMF, and curb inflation by keeping purchasing power high.

It’s simple: A strong dollar means that 

 while importing consumer goods is cheaper. Trump has long argued that weaker foreign currencies give other countries an unfair exporting advantage in comparison to the US. By weakening the dollar, US goods would become cheaper for international consumers, potentially reducing the trade deficit. Trump has also argued that a weaker dollar would bring manufacturing jobs back stateside.

, making his true policy aims hard to nail down. He’s not the only one keeping investors guessing: Just a few hours after covering the rising won and weaker dollar, 

 reported that a person familiar with tariff negotiations stated that currency policy is 

 at this time. After that report broke, the dollar index rose into positive territory for the day.

 would handicap the global financial system, Wall Street, and households across the country—not to mention the geopolitical consequences.

It’s not just an issue of markets and the financial system, either. A weaker dollar undermines national security, because it makes US sanctions on other nations less of a hammer and more like a slap on a wrist.

The threat of losing dollar dominance isn’t a new phenomenon. In the 1980s, it looked like Japan might unseat the dollar from its number one spot—and the same fears cropped up with the EU in the 2000s—but it hasn’t happened yet.

In the worst-case scenario, a weaker dollar could even exacerbate 

 if US borrowing costs suddenly skyrocket and the global monetary system becomes destabilized, argued former chief economist for the IMF Ken Rogoff.

Now we know what George Washington is frowning about on the $1 bill.—

The won and yen lifting weights while the dollar lays in a puddle of sweat

The US dollar is down, while foreign currencies are rising

Is President Trump's plan to sink the greenback going to help the US economy?

Dollar down

Lost among yesterday’s trade deal news was an announcement that sent shivers down economists’ spines: The backbone of US economic growth for the last three years is beginning to break.

Worker productivity is the difference between the amount of goods and services that workers produce versus how many hours they work. In other words, it measures how efficiently US workers can create products—and the metric sank last quarter for the first time since 2022, the Bureau of Labor Statistics revealed.

 fell 0.8% year over year in Q1, lower than the 0.7% analysts expected, and a steep decline from the 1.7% growth rate in Q4. For context, productivity grew 2.8% in 2024 overall.

The culprits were a 0.3% drop in output combined with a 0.6% increase in hours worked. That’s why unit labor costs, which measure how much employees are paid to produce one unit of any given product, rose 5.7% last quarter—higher than the 4.8% expected, and a huge jump from 2% in Q4.

We won’t lie—the numbers look bad. When worker productivity rises, the economy gets stronger. When you get a lower output from more hours worked, coupled with higher expenses to produce goods and services—like we did this quarter—that can indicate some serious economic issues.

But some economists think these numbers aren’t nearly as bad as they seem. Their reasoning is that the data has been somewhat distorted by the surge in imports since the end of Q4.

“The productivity black eye reflects disruptions to net exports caused by the imposition of tariffs and heightened policy uncertainty rather than genuine weakness in output,” explained EY Chief Economist Gregory Daco. He pointed out that manufacturing productivity rose by 4.5% in Q1, due to a 5.1% increase in manufacturing sector output and only a 0.5% increase in hours worked, going against the narrative the headline numbers suggest.

But a broader economic slowdown is still expected, given tariff confusion is not likely to dissipate anytime soon. “Swings in both output and employment as the tariff shock works its way through the economy probably will make the productivity data harder to read over the rest of this year, but we generally expect the underlying rate of growth to slow somewhat,” wrote senior U.S. Economist for Pantheon Macroeconomics Oliver Allen in a note yesterday.

So, if you didn’t have a very productive week at the office, you’re not the only one.