Dominique Dwor-Frecaut
Summary Low unemployment leaves inflation as the key concern, with disinflation proceeding too slowly. Fedspeak has turned more hawkish, and August CPI likely failed Waller’s test for a September hold. I expect a 25bp insurance hike this month, followed by a hold through 2027 and resumed normalization in 2028. With hindsight, the 2024–25 cuts may […]
Dominique Dwor-Frecaut
Summary The NY Fed’s MCT is the best overall one-year-ahead predictor of headline PCE; acyclical core PCE has performed at its best since 2023. Core PCE has recently been boosted by legal services, portfolio management, and software—the same categories BEA will revise in September. Excluding these categories lowers current core PCE inflation by about 0.5pp […]
Dominique Dwor-Frecaut
Summary I review the Jackson Hole Symposium papers, focusing on tokenization and AI. Tokenization could transform finance by enabling cheaper, atomic, and 24/7 transactions, but scaling it requires access to a safe settlement medium; JH participants favored tokenized central-bank reserves over stablecoins. The ECB and SNB are ahead of the Fed in implementation, potentially giving […]
Dominique Dwor-Frecaut
Summary I base my Fed view on what the Fed will do, not what it should do. I start with Fedspeak, assess the data outlook, and map both into the Fed’s reaction function. Fed policymaking is fundamentally risk management: slack and inflation are difficult to assess in real time, while R*, financial conditions, and policy […]
Dominique Dwor-Frecaut
Summary Warsh has revived money as a policy indicator, but not monetary targeting: his approach is “monetarism-lite,” with money complementing rather than replacing inflation targeting. Velocity is not stable: its long-run decline reflects financialization and banks’ shift away from lending to the real economy, limiting the usefulness of money growth as a policy guide. The […]
Antonio Del Favero
Summary We expect the MPC to leave the Bank Rate at 3.75% on June 18. Forward guidance is unlikely to be altered, but, given the dovish data, the tone in the minutes could become more balanced. We expect a 7-2 vote split, but we see the risk that just Huw Pill could vote for a […]
Dominique Dwor-Frecaut
Summary I expect the Fed to remain on hold while shifting to a neutral bias, with no dissents and a dot plot showing no cuts in 2026 and one cut each in 2027 and 2028. I expect a neutral-to-dovish press conference. With both the data and the FOMC constraining his room for manoeuvre, Warsh could […]
Dominique Dwor-Frecaut
Summary The payroll recovery likely reflects an increase in labor supply driven by lighter immigration enforcement since Q4 2025. Because the recovery is supply-driven, it has been accompanied by wage disinflation and should continue to support broader disinflation. Payroll growth could remain near 200k until Q4 as migrant workers discouraged by aggressive enforcement last year […]
Dominique Dwor-Frecaut
Summary Despite continued disruption in the Strait of Hormuz and what the IEA calls the largest oil supply shock in history, oil prices have risen much less than expected, reducing the likelihood of a 2026 recession. Therefore, I revise my 2026 Fed outlook to one insurance cut rather than multiple cuts. The inflation shock is […]
Dominique Dwor-Frecaut
Summary Since 1971, around 80% of Fed easings have taken place with inflation above 2%; even excluding the 1970s–mid-1980s high-inflation era, the share remains about 75%. Somewhat lower inflation around Fed cuts since the mid-1980s seems to reflect more of a change in the inflation regime than in the Fed’s reaction to inflation. Since the […]
Antonio Del Favero
Summary The MPC will hold at 3.75%, most likely 7-2, with Pill and Greene dissenting. The split between 7-2 and 8-1 or 9-0 remains an extremely close call. Honestly, if Mann were to join (7-3), we would not be too surprised. However, we do not expect this to happen. Post-March data tells two conflicting stories: […]
Dominique Dwor-Frecaut
Summary Base case: War triggers a 2026 recession, driven by a prolonged Strait of Hormuz (SOH) closure and underlying economic fragilities. Policy response: With long-term inflation expectations anchored, the Fed can cut four times in H2. Alternative: If the SOH reopens within a couple of months, the US likely avoids recession, and the Fed delivers […]
Viresh Kanabar
Summary The BoJ kept rates unchanged at 0.75% as expected. The voting was split 7-1, with Gov Takata dissenting in favour of a rate hike. We find Gov Tamura’s decision not to dissent interesting, as it suggests a hike in April may not be likely given his hawkish posture. Elsewhere, Gov Ueda was fairly hawkish […]
Viresh Kanabar
Summary Gov Hauser spoke with Michelle Grattan on her podcast last week, where he laid out the case for a March rate hike. His case is fairly straightforward: the economy is suffering from limited spare capacity, recent data has been in line with the RBA’s forecast, and the oil spike could risk a further overshoot […]
Dominique Dwor-Frecaut
Summary The Supreme Court’s decision striking down IEEPA tariffs materially constrains the administration’s trade policy discretion and, in the long run, lowers policy uncertainty. Given that uncertainty has weighed on household and business spending, its decline could support a recovery. In the short run, however, the Supreme Court ruling creates new uncertainty on tariff levels […]
Dominique Dwor-Frecaut
Summary The October trade deficit narrowed to $29bn, the lowest since the GFC, driven mainly by weaker goods imports. Consumer and auto imports declined while a surge in IT capex imports was partly offset by a contraction in non-IT capex imports. Lower imports likely reflect slowing demand more than substitution toward domestic production, as there […]
Dominique Dwor-Frecaut
Summary Fed Chair nominee Kevin Warsh intends to shrink the Fed’s balance sheet while simultaneously cutting interest rates. However, a significant balance sheet squeeze is unfeasible without shifting bank incentives to hold large reserves. Any reduction must be gradual to avoid destabilizing the repurchase agreement (repo) and Treasury markets; consequently, the balance sheet is unlikely […]
Viresh Kanabar
Summary The RBA hiked to 3.85% as expected, citing a strong inflationary impulse, deteriorating inflation breadth, a tighter labour market, strong private sector demand near potential, and accelerating credit growth. Updated forecasts show trimmed mean inflation at 3.2% through end-2025 (up 0.5 pp) and 2.7% by December 2027 (up 0.1 pp). This implies inflation running […]
Viresh Kanabar
Originally published 10.53am, corrected 11.22am. “25 bps cut” to “25 bps hike”, Summary At December’s meeting, Governor Bullock pre-warned markets about the February hike risk by outlining two key watch areas: clear evidence of broadening inflationary pressures signs that financial conditions are no longer restrictive. Since then, inflation, labour market, household spending, and residential investment […]
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