Breakfast briefing: Fed cuts outlook for the US economy

Here’s our summary of key economic events overnight that affect New Zealand, with news the Fed governors are clearly worried about the inflation threat from the new tariff taxes.

The US Fed has kept rates unchanged in their decision earlier today, holding their core policy rate at 4.25%. The projection dot plot suggested that they have two more -25 bps rate cuts pencilled in for 2025 and one more for 2026. They also downgraded their expectations on growth in the US economy, dropping the 2025 estimate from +1.7% to +1.4%, and trimming their forecast for 2026 to +1.6%. Fed boss Powell said these growth downgrades will come as higher tariffs hinder the US economy and put upward pressure on US inflation.

Meanwhile US initial jobless claims eased lower to 236,000 but the reduction is all accounted for by seasonal effects. There are now 1.82 mln people on these benefits, almost +100,000 more than this time last year.

US mortgage applications fell last week despite the benchmark mortgage interest rate easing lower at the same time.

Also falling and rather sharply, were new housing starts in May. They fell almost -10% from April to be -1% lower than the same month a year ago.

Across the Pacific, Japanese machinery orders fell more than -9% in April, a sharp reversal from March’s +13% surge. This was the weakest reading since April 2020, but about what was expected. Still, they remain +6.6% higher than year-ago levels. Meanwhile Japanese exports fell in May after seven consecutive months of expansion. A retreat was expected and what they got wasn’t a sharp as those expectations. However, imports slumped -7.7% from a year ago and more than expected.

Meanwhile, Japanese car exports to the US fell in volume terms by almost -4% in May, but in value terms they were down almost -25%, suggesting that at the moment, Japanese carmakers are absorbing some of the new US tariffs to maintain their market share.

The iron ore price is under pressure, unable to get out of its new lower range, and confirming the overall slowdown in the global economy.

Meanwhile, the silver price has pushed up to a new all-time high.

The UST 10yr yield is now at 4.40%, and up +1 bp from yesterday, clawing back earlier falls after the Fed commentary. The key 2-10 yield curve is now at +43 bps. Their 1-5 curve is now inverted by -14 bps. And their 3 mth-10yr curve still positive at +18 bps. The Australian 10 year bond yield starts today at 4.23% and down -1 bp from yesterday. The China 10 year bond rate is unchanged at 1.64%. The NZ Government 10 year bond rate starts today at 4.60% and down -1 bp from yesterday.

Wall Street is easing back today after the Fed with the S&P500 unchanged after being higher earlier. Overnight, European markets were mostly lower by about -0.3%, except London which was little-changed. Yesterday, Tokyo closed up +0.9%, Hong Kong was down -1.1% and Shanghai was unchanged again. Singapore ended down -0.3% however. The ASX200 ended its Wednesday trade down -0.1% while the NZX50 also booked a -0.1% retreat.

The price of gold will start today at US$3,386/oz, and down -US$3 from yesterday.

American oil prices are still in the higher zone, unchanged from yesterday at just on US$74.50/bbl while the international Brent price is now just over US$76/bbl.

The Kiwi dollar is now just over 60.2 USc, unchanged from yesterday. The USD firmed slightly after the Fed decision. Against the Aussie we are down -30 bps at 92.7 AUc. Against the euro we are up +10 bps at 52.5 euro cents. That all means our TWI-5 starts today at on 68.2 and unchanged from yesterday.

The bitcoin price starts today at US$104,247 and up +0.3% from yesterday. Volatility over the past 24 hours has been low at just under +/-0.9%.

Tomorrow is a public holiday in New Zealand, Matariki, and this briefing will take a break. And remember, it is a holiday in the US tomorrow, Juneteenth. But we will be back for the Weekend Briefing on Saturday.

The easiest place to stay up with event risk is by following our Economic Calendar here ».