INFLATION ROSE
As expected, inflation levels increased in April as the Personal consumption expenditures (PCE) price index, closely monitored by the Federal Reserve, showed a 0.2% uptick excluding food and energy costs, consistent with projections. On a yearly basis, the core PCE rose by 2.8%, slightly surpassing estimates. Energy prices surged by 1.2%, contributing to the overall increase, while food prices experienced a modest reduction. Alongside this, data was released on income and spending dynamics, revealing a 0.3% rise in personal income and a 0.2% increase in spending. This results sparked concerns over the possibility of upcoming interest rate adjustments, nonetheless, market reactions were still generally positive, with stock futures climbing and Treasury yields dipping. However, despite the favorable response, experts suggest that future rate adjustments may require more time before being implemented, with speculation pointing towards a potential rate cut in September. Moreover, let’s remember that the Fed remains cautious in light of higher-than-desired inflation levels, maintaining a conservative stance on monetary policy decisions, and this cautious approach may delay any near-term rate cuts.
IMPACT OF RISING INFLATION
Strategists at Bank of America (BofA) have highlighted a shift in consumer and business behavior in the U.S., as both groups have become more cautious in their spending due to elevated inflation and interest rates. This year, consumer spending has slowed down from a nearly 10% growth rate in May 2023 to around 3.5%, totaling approximately $4 trillion. The trend of decreased spending has been consistent since last summer, reflecting a slow-growth period observed between 2016 and 2018. Thus, despite the Federal Reserve’s efforts to curb inflation by raising interest rates, consumers and businesses are still grappling with higher prices, impacting various industries from retail to entertainment. Moreover, strategist believe that inflation may take until the end of next year to stabilize, and the Fed might start reducing interest rates later this year. In addition, they believe that the economy is expected to grow at around 2% without heading into a recession.
SURGE OF RE-STAKING
The cryptocurrency market is witnessing a surge in popularity of “re-staking,” a complex scheme where investors lock up their tokens in exchange for rewards. EigenLayer, a Seattle-based start-up, has seen a substantial influx of over $18 billion to its platform, marking a significant increase from just six months ago. By introducing re-staking as an extension of the traditional staking practice, EigenLayer has sparked interest among cryptocurrency holders seeking to capitalize on potentially higher returns. However, this trend has raised concerns among analysts regarding the associated risks, particularly if tokens representing re-staked cryptocurrencies are utilized as collateral in lending markets. The concept of re-staking reflects the broader landscape of decentralized finance (DeFi), where investors engage in speculative ventures in pursuit of substantial gains without resorting to selling their holdings. While some view re-staking as an opportunity for increased yields, others highlight the uncertainty and potential dangers inherent in this practice. The rapid growth of re-staking platforms is fueled by users’ anticipation of rewards, including airdrops, which provide additional incentives but also contribute to the speculative nature of the crypto market.
TAX FILING EXPANTION
The IRS and the U.S. Department of the Treasury have announced that they will be rolling out the Direct File free tax filing program nationwide in 2025, following a successful trial run in 12 states during the 2024 tax season. The program, which offers a simplified tax filing experience for individuals with straightforward tax situations, will now be accessible to taxpayers across all 50 states. Direct File has been designed to streamline the filing process and save taxpayers money by eliminating the need for costly tax preparation services. With over 140,000 users successfully filing their returns through the pilot program and an estimated $5.6 million collectively saved in tax preparation fees, the expansion of Direct File is seen as a positive step towards enhancing access to free tax filing options. Looking ahead, the IRS intends to gradually broaden the program’s reach to include more common tax situations, particularly those affecting working families. Furthermore, Direct File will serve as an additional filing option, complementing the existing services provided by commercial tax software companies in collaboration with the IRS.
INTERNATIONAL NEWS
The Ministry of Finance in Japan has intervened in the currency market for the first time since 2022 due to the Japanese yen dropping to a 34-year low against the U.S. dollar in April. Although speculations initially circulated regarding potential intervention as the yen started to rebound, it eventually became apparent that Japanese authorities had indeed taken action to stabilize the currency. Japan spent a significant amount of 9.7885 trillion yen, equivalent to $62.25 billion, between April 26 and May 29 in efforts to stabilize the yen’s value, and this intervention was crucial in preventing adverse effects on households and companies in Japan, as the yen has been under pressure since the Bank of Japan ended its negative interest rate policy. Moreover, let’s highlight that back in 2022, Japan used similar measures to stabilize the yen, spending an estimated 9.2 trillion yen throughout that year.
