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Monetary Policy & Inflationsee more…

  1. Will the Residential Recovery End Disinflation?

    Dominique Dwor-Frecaut

    Summary The ongoing residential investment recovery is too small to discernibly impact housing supply and cap housing inflation. Yet it is adding to aggregate demand and could create resource pressures. The risks are finely balanced. On one hand, the US housing shortage supports a strong residential recovery. On the other, Fed support has been much […]

  2. America’s Turbo Economy

    Dominique Dwor-Frecaut

    Summary Business spending generates household income and spending and, in turn, more business spending. A very low savings rate on the household side and the Biden administration’s industrial policies on the business side have turbocharged this positive feedback loop. So far, the turbo economy has not caused overheating, largely due to high profits and a […]

  3. Ep. 204: Claudia Sahm on Inflation Risks, Fed Cuts, and Recession

    Bilal Hafeez

    Claudia Sahm is a well-known, highly regarded, Washington-based expert on monetary and fiscal policy and forecasting. She has advised decision-makers at the Federal Reserve, White House, and Congress.

  1. How Young Is the US Expansion?

    Dominique Dwor-Frecaut

    Summary Low unemployment suggests the ongoing expansion could be more mature than its duration alone suggests. Continued, if slower, disinflation (i.e., no recession) remains my base case for 2024. However, Donald Trump winning the election could lead to inflationary policies, Federal Reserve (Fed) tightening, and recession in 2025-26. Under more conventional macro policies, the expansion […]

  2. Disinflation Without Fiscal Consolidation?

    Dominique Dwor-Frecaut

    Summary The US budget deficit is likely to narrow in FY2024, but this reflects tax payments postponed in FY2023. Overall, the FY2024 fiscal stance will likely remain loose. Loose fiscal policy need not compromise disinflation if it remains offset by a large excess of private sector savings over investment. As I expected in March 2023, […]

  3. Ep. 202: Alberto Gallo on Trump, Fiscal Risks, and Market Outlook

    Bilal Hafeez

    Alberto Gallo is Chief Investment Officer and Co-founder at Andromeda Capital Management. Prior to that, Alberto initiated and ran the Global Credit Opportunities fund at Algebris Investments.

Charts of the Week: Rising R-Star, ‘Last-Mile’ Disinflation, and a 2024 Oil Supply Deficit

Matthew Tibble

Summary The Fed has r-star around 0.5% in real terms, but markets are pricing it around 2%. We think this could be a return to the pre-GFC ‘normal’. US disinflation could be entering its ‘last mile’ phase, implying slower price increases ahead. Asian trade data corroborates the recent pick-up in global manufacturing, but a lack […]

Disinflation to Slow as ‘Last Mile’ Begins

Dominique Dwor-Frecaut

Summary The precedent of the 1980s and 1990s suggests there is a slower ‘last mile’ phase of the disinflation process. We could be about to enter this last mile – that is, disinflation could be about to slow. This time, however, the last mile could still be faster than during the 1990s because of lower […]

  1. Fed Review: Change of Call – No Cut in March

    Dominique Dwor-Frecaut

    Summary The Federal Reserve (Fed) moved to an easing bias, but Fed Chair Jerome Powell ruled out a March increase, largely because he has less confidence about disinflation and is less concerned by inflation undershooting than I expected. A March cut could still happen if the economy weakened markedly or New York Community Bank’s difficulties […]

  2. FOMC Preview: Fed to Prepare for a March Cut

    Dominique Dwor-Frecaut

    Summary Since December’s FOMC, growth and inflation have been below or in line with the SEP, with FOMC members expressing a wide range of views on the timing of cuts. I expect the statement to prepare markets for a March cut by removing the reference to policy firming and conveying greater confidence that inflation is […]

  3. Ep. 199: Dominique Dwor-Frecaut on Fed Slashing Rates and Trump Winning

    Bilal Hafeez

    Dominique Dwor-Frecaut is the Chief US economist and macro strategist for Macro Hive and is based in Los Angeles.

Trump 2.0: Volatility Ahead?

Dominique Dwor-Frecaut

Summary A second Trump administration would likely widen the budget deficit, end immigration, and raise tariffs further. Unlike the first Trump administration, a second administration would inherit an economy with strong resource pressures, and these policies could therefore raise inflation. As a result, the Federal Reserve (Fed) may have to tighten policy. Market Implications Contrasting […]

Charts of the Week: Bearish JPY, Short CNH, and Fading the UK Inflation Beat

Matthew Tibble

Summary Two factors support our bullish USD/JPY call: weak Q1 seasonals for JPY, and Japan’s cyclical downturn. China faces a supply-demand imbalance preventing inflation from returning to positive territory. UK inflation remains below BoE forecasts despite the recent beat. Equities are trading at historically high P/E valuations, which could depress returns in 2024. Market Implications […]

  1. Change of Call: 50bp Fed Cut in March

    Dominique Dwor-Frecaut

    Summary Historically, core PCE has (almost) never been at 2.4% as the Fed expects in 2024; it has been either below 2% or much higher, which is consistent with a ‘regime’ view of inflation. The SEP inflation scenario, if it materializes, is therefore likely to become a return to the pre-pandemic chronically underperforming inflation. A […]

  2. Markets to Watch: CPI to Support a 50bp Fed Cut in March?

    Bilal Hafeez, Viresh Kanabar

    Summary We introduce a new format for 2024, with a more forward-looking focus on the week’s key events. In the US, we expect CPI to show continued disinflation and the small business survey to show resilient growth trends. Dominique now thinks a 50bp cut at the March FOMC is more likely than 25bp. In Europe, […]

  3. The Fed Is Out to Cut

    Dominique Dwor-Frecaut

    This article was originally published on 19 December and is now re-released for Prime members. Summary The Fed has shifted its focus from stabilizing inflation to supporting growth and asset prices, which suggests frontloaded FFR cuts. If the soft-landing scenario the Fed is hoping for materializes, inflation will be practically back at target by end […]

Red Sea Quagmire Unlikely to Stop Fed Pivot

Dominique Dwor-Frecaut, Viresh Kanabar

Summary Shipping through the Red Sea has been disrupted by attacks that have raised shipping costs and that could persist. Beyond the initial $1-2 spike in oil, we see little further upside (relating to the rerouting). We watch for attacks on local tankers from warships in the region but do not see a ’70s-style embargo […]

Ep. 194: Liang Ding on Can China Avoid a Hard Landing

Bilal Hafeez

Liang is currently based in Shanghai and has close to twenty years of market experience as a currency strategist, China economist, portfolio manager, and quant analyst.

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