Before you can lower something, you have to stop raising it.

Readers of the tea leaves of Federal Reserve governors’ public statements may have caught a glimpse of a small but possibly significant shift in the central bank’s tone regarding future interest-rate decisions — namely, they might be as high as they’re going to get.

Fed Speak

In a speech on Tuesday to the Peterson Institute in Washington, Federal Reserve governor Christopher Waller offered the usual hedge we’ve seen in just about every Fed official’s comments in the recent past — something to the effect of “inflation looks OK-ish, but we’ll need to see a lot more before we even dream of cutting rates.” Waller even graded the latest April consumer price report, which showed core inflation slowing to an annual rate of 3.6%, its lowest reading since April 2021, as a “C+ — far from failing but not stellar either.”

But as Larry David might put it, when you’ve been carrying a D average, a C+ is “pretty, pretty good.” And Waller fanned the flames of optimism by saying that the high rates the Fed has sustained may finally have the fight against inflation back on track. “Central bankers should never say never, but the data suggests that inflation isn’t accelerating, and I believe that further increases in the policy rate are probably unnecessary.”

That’s about as positive a statement as you’re likely to get from a Fed governor these days, but it’s worth remembering we’re not that far removed from valid fears that not only would we see no rate cuts in 2024 but that rate hikes might be necessary. Life was good when the annual inflation rate dropped to 3.1% last November, but it jumped again in December and has stayed above that 3.1% floor for every month of 2024 (the Fed’s inflation target is 2%).

But true to the Fed mission of not overpromising, Waller was quick to note that the progress wasn’t exactly massive:

• Waller said April’s inflation report showed a “small” improvement — so small that he needed to “report the monthly numbers to two decimal places to show progress.” He also pointed to the resilient labor market as forcing the Fed to rely mostly on inflation numbers before considering rate cuts.
• In April, the government reported its 27th consecutive month of unemployment below 4%, though wage growth appears to be slowing. Less relative earnings could help solve inflation, but it may add a few bumps to the “soft landing” scenario — low inflation that doesn’t tip the economy into recession.

Keep Guessing: As for the “good inflation data” Waller and his fellow Fed governors say they need, it’s still an inexact science and Waller is offering only the smallest of clues. “I will keep that to myself for now but let’s say that I look forward to the day when I don’t have to go out two or three decimal places in the monthly inflation data to find the good news.” Here at the Daily Upside, we always knew the future of the US economy might come down to a decimal point.

Who are you calling boring?

Shares in power companies have outpaced the broader S&P 500 over the past three months, with utility stocks accounting for three of the five best performers in the index.

Positive Charge

Similar to consumer-focused firms like Procter & Gamble or Coca-Cola, the stocks of utility companies are generally seen as safe and defensive bets. They don’t typically come with tech-like breakout potential, but they’re consistent and tend to weather the ups and downs of the market without the extremes. And unless Americans start leaving the grid to live off the land with wood fires for heat and shadow puppets as their only form of entertainment, energy is something people will always need.

In an era when seemingly every tech company is vying to win the AI race, power is the name of the game. Just like crypto mines, AI data centers require tons of energy for computing and cooling power. Wells Fargo recently reported that US electricity demand is expected to grow by as much as 20% by 2030, and AI data centers alone are likely to add 323 terawatt hours of electricity demand (one terawatt powers 70,000 homes for a year):

• Constellation and NRG are the fourth and fifth top-performing stocks on the S&P 500 this year, with their stock up 84% and 58%, respectively. But Irving, Texas-based Vistra Corp is even more impressive, at No. 2 with a stock rise of 138%.
• Reaves Asset Management President John Bartlett told the Wall Street Journal that “the puck is going” toward energy stocks, but the key to demand trends is watching the plans of Big Tech names like Alphabet, Amazon, and Microsoft. For instance, Amazon said last month it plans to invest $11 billion into a new data center in Indiana. 

Negative Charge: The expansion isn’t without potential problems. The demand boost from future data centers would likely require burning more fossil fuels, something many consumers, businesses, and lawmakers want to avoid. Plus, if utility companies build out new infrastructure and power demand falls short, ratepayers could be stuck with higher bills for decades, the WSJ reported. Those wood fires and shadow puppets may not be such a bad option.

While the price of chicken eggs is still inducing rage, Americans are feeling more confident about their nest eggs. 

The number of US employees who rate their financial wellness as good or excellent is on the uptick, according to a new report from Bank of America.

A Little Bit Better

Judging how consumers feel can often involve playing the game of “see what they do, not what they say.” The University of Michigan consumer-confidence survey, for example, fell to a six-month low in April as respondents expressed concerns about inflation, unemployment, and interest rates. 

But consumers also continue to spend, with retail sales remaining healthy amid wage growth that has outpaced inflation for some time. Now, it seems, some people’s opinions are catching up with their pocketbooks: 

• The percentage of US employees who think their financial well-being is good or excellent rose to 47% in the first quarter, up from 42% a year prior, BofA data shows. Additionally, the number of employees concerned that economic uncertainty will affect their retirement and benefits dropped to 53%, down from 63%.
• Debt assistance is also emerging as a new tool to help employers attract and maintain workers. Half of employers make matching contributions to 401(k) plans, and of those, 37% offer student loan repayment assistance. That’s a big lure as 1 in 4 Americans has student debt, which has collectively ballooned to $1.7 trillion. 

Wage Gap: Despite some good news, an economic gender gap remains as 53% of men reported good or excellent financial wellness compared to just 36% of women. And no doubt a gender gap in earnings has a lot to do with that. The Bureau of Labor Statistics said women’s median weekly earnings were roughly 84% of what men made in 2023. But perhaps that’ll improve: BofA also found that 70% of women feel confident about their career outlook compared to 64% of men.