Dominique Dwor-Frecaut
Summary Because of the political costs associated with large interest payments, the Fed is biased towards holding a smaller balance sheet relative to the needs of its operating framework. Because of the interconnectedness of the money market segments, the Fed must provide liquidity to the entire money markets, not just banks. A broad measure of […]
Dalvir Mandara, Eric Wang, Bilal Hafeez
Not a day goes by without a new LLM model hitting the market, each claiming to outperform the rest on some benchmark leaderboard. But these self-reported scores often deserve scepticism. Much like marking your own homework, these evaluations can be misleading. For starters, many benchmark datasets – or even their answers – might appear in […]
Henry Occleston
Summary The BoE’s March meeting aligned with our expectation, albeit with less dovish voting. We read little into this. The bar is high for data to prevent quarterly cuts. However, by August, we expect fiscal tightening, labour market loosening and soft core services inflation will push the BoE to accelerate cuts. February inflation will struggle […]
Dominique Dwor-Frecaut
Summary The Fed remained on hold and kept two 2025 cuts in the SEP as I expected. Powell’s growth views were ambiguous as he appeared less pessimistic than the SEP. Powell’s base case is for the tariffs inflation impact to prove transitory, though he stressed uncertainty was unusually high. The FOMC policy consensus grew stronger […]
Antonio Del Favero, Dominique Dwor-Frecaut, Richard Jones
Summary Our base case is no major changes in the dots, economic projections, or during the presser. The first paragraph in the statement could be updated to reflect recent economic developments. We think the longer-run dot will increase marginally from 3.0% to 3.1%. Market Implications We expect some rates selloff and bear flattening, alongside equity […]
Henry Occleston
Summary We expect the BoE to leave the bank rate unchanged at 4.5%, with Dhingra, Taylor and Mann voting for another cut. We would be unsurprised if Mann backed another 50bp cut: our BoE LLM sentiment index supports her fear that transmission to financial conditions has weakened. The minutes will indicate whether this view has […]
Dominique Dwor-Frecaut
Summary With the new USTR now fully in place, and with the Trump administration aware it needs more disciplined policy messaging, tariff policy is about to become more process driven. This could restore some private sector confidence and spending because the drama and chaos over tariff policies has exaggerated the importance of the manufacturing sector. […]
Dominique Dwor-Frecaut
Summary February CPI surprised on the downside but did not change my big picture view of inflation, stuck about 1ppt above the Fed’s 2% target. However, risk exists the Trump administration’s policies could raise costs and weaken demand, with uncertain inflation impact but a negative growth impact. Market Implications I keep my call for no […]
Dominique Dwor-Frecaut
Summary A surge in policy uncertainty is starting to undermine growth while inflation risks remain tilted to the upside. On the eve of the pre-meeting blackout, with the SPX already down 6%, Fed Chair Jerome Powell indicated a continuation of the Fed’s wait and see stance. Market Implications I still expect no cuts in 2025 […]
Dominique Dwor-Frecaut
Summary The surge in policy uncertainty has not impacted the labour market much yet. Nonfarm payrolls (NFP) were lower than expected for the second month in a row, but this could reflect data choppiness and residual seasonality. Labour supply growth remained weak. Most measures of labour market utilization indicate a still tight market. Nominal wage […]
Dominique Dwor-Frecaut
Summary President Donald Trump aims to reverse the decline in the income share of lower income Americans. If successful, this could create a macro regime change with higher growth and inflation as well as a steeper Phillips curve: The market consequences of the macro regime change include: Higher real yields. Ending US equity markets outperformance. […]
Dominique Dwor-Frecaut
Summary Yesterday’s swing in the Atlanta Fed Q1 GDP nowcast to -1.5% QoQ SAAR from 2.3% reflects a swing in imports caused by expectations of tariff increases. By contrast, the nowcast for final domestic demand growth remained positive, though well below actual Q4 GDP growth. The slowdown likely reflects higher consumer savings caused by concerns […]
Bilal Hafeez
Joe Lavorgna is a Managing Director and Chief Economist for SMBC Nikko Securities. He was previously the Chief Economist for the Americas at Natixis.
Dominique Dwor-Frecaut
Summary Net Fed tightening has not changed financial conditions much and growth remains well above trend. Strong consumption largely reflects the impact of the 2022-24 immigration surge and government-funded household deleveraging during the pandemic. Strong corporate investment reflects strong cash flow rather than increased leverage. The above suggests growth is more at risk from negative […]
Dominique Dwor-Frecaut
Summary Since the 29 January FOMC, data releases have generally been towards increasing inflation risks. Transmission of Fed easing to the real economy has been unequal. Household wealth has risen but credit growth remains weak. Recent Fedspeak shows the FOMC are wondering whether policy is restrictive enough. This creates risk the Fed could end its […]
Dominique Dwor-Frecaut
Summary For all of DOGE fanfare, the Treasury daily cash balance does not show a decline in expenditures. This is because DOGE is an auditing rather than a budgeting outlet. Congress does budgeting and the current budget resolution shows fiscal consolidation is to come mainly from the faster growth engineered by the administration’s economic policies, […]
Ben Ford
Summary The RBA cautiously lowered the cash rate by 25bps to 4.1% at its February meeting. Three factors drove the easing bias, one held it back. 1) Moderating underlying inflation saw price pressures below RBA forecast. Forward-looking data suggests continued easing, too. 2) Subdued private demand growth has worried the RBA. They have baked in […]
Dominique Dwor-Frecaut
Summary January’s CPI upside surprise did not change my big picture inflation view, stuck at about 1ppt above the Fed’s 2% target. Market and survey-based inflation expectations continued rising in January. Inflation trends remained stable and high. Evidence of cost pressures rose with unit labour costs increasing. Domestic demand pressures are raising inflation, though this […]
Dominique Dwor-Frecaut
Summary Nonfarm payrolls (NFPs) were lower than expected but an upward revision to December made up for the shortfall. Overall, the past month’s data still indicates strong labour demand and further labour market tightening. Annual data revisions provided a one-time statistical lift to labour supply, but the underlying fundamentals remain weak. Wage growth has been […]
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