Pause now, but more to come

<p>Kia ora,</p><p>Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the international edition from Interest.co.nz.</p><p>And today we lead with news markets are choppy after the Fed decision.</p><p>As widely expected, the US Fed did <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20230614a.htm" target="_blank"><strong>hold its policy rates unchanged</strong></a> at today's meeting. But it added the phrase "in determining the extent of additional policy firming that may be appropriate ..." signaling the more hikes are probable. They reinforced the importance of getting to their 2% inflation target. Their own median <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230614.pdf" target="_blank"><strong>forecasts</strong></a> suggest two more rate hikes this year, adding another +50 bps in 2023. So it's more of a 'skip' than a 'pause'. This caused the US dollar to slip, equity markets to retreat, and bond yield to rise.</p><p>American <a href="https://www.bls.gov/news.release/ppi.nr0.htm" target="_blank"><strong>May producer prices rose</strong></a> only +1.1% from year-ago levels, up +2.8% without food and energy. They fell -0.3% in May from April, following a +0.2% rise in April. Markets had expected only a -0.1% month-on-month drop. Goods prices went down -1.6%, the largest decrease since July 2022, mainly due to a -14% drop in petrol prices and a -1.3% fall in food prices. Prices for services rose +0.2% in May. All this paints a picture of rapidly receding inflation.</p><p>American <a href="https://www.mba.org/news-and-research/newsroom/news/2023/06/14/mortgage-applications-increase-in-latest-mba-weekly-survey" target="_blank"><strong>mortgage applications rose</strong></a> rather sharply last week, up +7.2% from week-ago levels but are still substantially below year-ago levels. However, it was their first rise in five weeks. Mortgage rates declined for the second