The Balancing Act

May 13, 2026

Elias Haddad

Fed to stay restrictive in an uncomfortable middle ground. USD supportive.

US disinflation trend has stalled. But labor demand is stabilizing.

Second-tier data on deck today.

USD is up against most major currencies, with the dollar index (DXY) testing resistance at its 200-day moving average. Commodity-sensitive NOK, CAD, AUD, and ZAR are holding up better versus USD. Crude oil prices are consolidating yesterday’s gains, the decline in global bond markets eased and stock markets are mostly firmer.

The hot US April CPI print reinforced the upward adjustment to US rate expectations in favor of USD. The swaps curve now fully prices a 25bps Fed funds rate hike in the next 12 months, up from 50% on Friday.

Headline and core CPI inflation quickened more than expected in April because of higher energy prices and statistical distortions to owners’ equivalent rent tied to missing data from the October 2025 government shutdown. Headline CPI rose to near a three-year high at 3.8% y/y (consensus: 3.7%) vs. 3.3% in March while core CPI increased to a six-month high at 2.8% y/y (consensus: 2.7%) vs. 2.6% in March.

Underlying inflation, which filters out extreme price swings, was softer than the headline suggested, but the disinflation trend has clearly stalled:

• The Atlanta Fed's sticky-CPI (weighted basket of items that change price relatively slowly) rose to a four-month high at 3.1% y/y vs. 3.0% in March.

• The Cleveland Fed 16% trimmed-mean CPI (strips out the most extreme 8% price increases and decreases) rose to a four-month high at 2.8% y/y vs. 2.6% in March.

• The Cleveland Fed median CPI rose to a two-month high at 2.8% y/y vs. 2.7% in March.

• Core services less housing CPI surged to a 13-month high at 3.4% y/y vs. 3.1% in March.

Bottom line: the US economy increasingly looks stuck in an uncomfortable middle ground that justifies keeping rates restrictive for longer. Inflation is moving further away from the Fed’s 2% goal, but labor demand is stabilizing. For markets, that backdrop should keep front-end Treasury yields and USD supported, while resilient growth underpins broader risk sentiment.

On tap today: April PPI, Fed President Susan Collins (non-voter), Minneapolis Fed President Neel Kashkari (voter), ECB President Christine Lagarde, ECB Chief Economist Philip Lane, and the Bank of Canada summary of deliberations from the April policy decision.

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