The major news in May wasn’t about the economy but about the tussle in Washington over raising the debt ceiling. Concern about the possibility, however slight, that the government could default on its debt made bond investors uneasy, unsettling parts of the bond market. On the last day of the month, however, the House passed legislation to suspend the debt ceiling, avoiding a potentially disastrous result.
However, the debt ceiling standoff wasn’t the only thing driving markets in May. The now-familiar questions persisted about where inflation is heading and whether there will be a recession. The pace of inflation continued to fall, with consumer prices up 4.9% in April compared to a year earlier. This was largely in line with what markets expected. Economic data has been mostly positive compared to what was anticipated. The job market continues to be strong, with the unemployment rate remaining very low and job creation strong. Similarly industrial output remains strong. Consumer optimism dipped during the month. The much-discussed recession hasn’t shown up, at least for now.