Nomura: North America Economic Weekly — Hawkish Data to Keep the Fed on Hold
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Nomura notes that March nonfarm payrolls delivered a robust gain of 178,000, pushing the unemployment rate down to 4.256%, its lowest level since June 2025. However, some of this employment growth may be transitory. Looking at inflation, core CPI is expected to accelerate to 0.286% month-over-month in March, driven by rebounds in core goods and shelter costs, marking the highest core goods inflation since January 2025. Rents and owners' equivalent rent (OER) inflation are projected to rebound, further supported by BLS carryover estimates in April. Consequently, core PCE inflation is estimated at 0.263% MoM and 3.1% YoY.
Geopolitical tensions in the Middle East persist, with the current administration suggesting potential military escalation over the next two to three weeks. On the trade front, the US has implemented a 25% tariff on metal derivatives and a 100% tariff on patented drugs, though generics are exempt. Despite these headwinds, high-frequency spending data shows resilience, supported by robust tax refunds and strong auto sales, which mitigate the drag from rising energy prices.
Overall, Nomura estimates Q1 GDP tracking at 2.0%, with real final sales to domestic purchasers at 2.3%. Given the resilient labour market and mounting price pressures, Nomura concludes that the hawkish data will keep the Federal Reserve on hold. Officials are likely to maintain the federal funds rate unchanged until greater clarity emerges on inflation and geopolitical risks.