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Daily Economic Update
17.04.2025US: Powell sees higher inflation and slowing economy on tariffs, rules out Fed intervention in markets for now. Fed Chair Powell emphasized that the bank was in a “challenging scenario” as growth and employment weaken amid uncertainty driven by larger-than-expected tariffs, while inflation would rise and could also become persistent. However, he also reiterated his earlier stance that the Fed would wait for greater clarity before adjusting monetary policy. His tone appeared a bit hawkish as he seemed to prioritize anchoring long-term inflation expectations, saying that price stability was necessary for strong labor market conditions. Moreover, he saw no need for any Fed intervention in the financial markets at this point as despite volatility and uncertainty, he believed markets were functioning well and orderly. He also expected the bank to continue with the current balance sheet runoff (QT) pace of $5bn for treasury securities and $35bn for MBS per month. Following his comments, equity markets extended their sell-off, with the S&P 500 closing 2.2% down yesterday.
US: Retail sales growth accelerates and manufacturing output increases ahead of tariff’s impact. Retail sales growth in March accelerated more than expected to its highest rise since January 2023 at 1.4% m/m (4.6% y/y) from a 0.2% (3.5% y/y) increase in February as consumers seemed to have front-loaded their purchases ahead of tariff-driven price hikes. However, details were more mixed, as a narrow measure of sales growth linked to goods spending in GDP (excluding food services, auto, gasoline and building supplies sales) slowed more than forecast to 0.4% m/m from 1.3% in February. Meanwhile, industrial production in March fell 0.3% m/m (but up 1.3% y/y) after an increase of 0.8% (1.4% y/y) in February on falling utilities output due to warmer weather conditions, though manufacturing was up 0.3% m/m before plausible supply-chain disruptions caused by tariffs.
UK: CPI inflation cools more than expected, providing some temporary relief. CPI inflation in March fell to 2.6% y/y (0.3% m/m) from 2.8% (0.4% m/m) in February, more than the Bank of England (BoE) and the consensus forecasts of 2.7%, with core inflation moderating to 3.4% from 3.5% earlier. While goods inflation (at 0.6%) eased for the second straight month, the rise in services costs slowed to a three-month low of 4.7%, better than the BoE’s forecast of 4.9%. Still, the relief should prove temporary, as household utility prices are set to rise from April and the BoE expects inflation to peak at 3.7% in Q3. Nonetheless, US trade tariffs will likely upend the global supply chain and some US-bound goods from China and other affected nations may get diverted elsewhere at more favorable price terms. This, along with trade-war driven softness in some commodity prices, could potentially provide disinflationary impulse for UK households. A US-UK trade deal is also being mooted for agreement in the next few weeks. Following the release of milder service and overall inflation prints, markets raised bets on BoE interest rate cuts, with 3-4 rate cuts seen by the end of 2025, including a 25bps move at the bank’s meeting next month.
Japan: Bank of Japan signals growth forecast downgrade amid US tariff concerns. The BoJ is preparing to lower its growth forecast for FY2025 in its upcoming monetary policy board meeting (30 April to 1st May) in response to the escalating risks stemming from the imposition of the new US tariffs, which would threaten growth in overseas economies and the country’s export-driven recovery. Discussions within the BoJ reveal no consensus on the full impact of the tariffs, with outcomes likely hinging on the success of the forthcoming negotiations and securing an exemption. The BoJ’s January forecast for growth in FY2025 was unchanged at 1.1%, but the new tariffs have introduced significant uncertainty, prompting a reassessment of this outlook. BoJ board member Junko Nakagawa emphasized in a speech today that excessive market volatility and rising living costs could dampen consumer sentiment, potentially hindering economic recovery. She noted that while consumption is recovering moderately, uncertainties over US tariff policies could adversely affect the economy. Despite these challenges, the BoJ is expected to maintain its current policy rate at 0.5%, as market volatility persists. However, the board member reiterated the BoJ’s commitment to achieving its 2% inflation target, although progress may be delayed due to these external pressures.
Saudi Arabia: Real estate prices continued to rise in 1Q25. The official real estate price index rose by 4.3% y/y (0.7% q/q) in the first quarter of 2025, the strongest gain since Q2 23, from 3.6% the previous quarter. The increase was driven largely by continued steep price gains in the residential sector (5.1% y/y), supported by an expanding non-oil economy and population. Moreover, increased demand for retail space has pushed up commercial property prices by 2.5% y/y. Looking at price movements by area/province, gains were led by Riyadh, with real estate prices (all sectors combined) up by a steep 10.7% y/y (1.4% q/q), the highest since Q1 23, while prices in Makkah, the largest province by population, saw the first increase (1.5% y/y) since Q2 23. In contrast, prices in most other regions continued to decline, with the Eastern Province index down by 5.5% y/y (-2.6% q/q). While market fundamentals remain strong, price increase momentum may ease thanks to government efforts to raise residential supply to maintain the affordability of housing to citizens, as well as the continued introduction of new retail space.