Dominique Dwor-Frecaut
Summary Current economic data does not support a September Federal Reserve (Fed) cut. Yet, because of contentious politics, Fed Chair Jerome Powell has been staying silent and allowed the market to price 100% risk of a September cut. I expect Powell to stay silent next week as market pricing is not far from the Fed’s […]
Dominique Dwor-Frecaut
Summary ‘Excess savings’ have been spent, but the savings rate is not recovering. The low post-pandemic savings rate likely reflects pricier basic necessities. If so, a recovery in savings would require either faster real wage growth or a decline in the relative cost of basic necessities. Neither appear likely. A low and stable household savings […]
Henry Occleston
Summary We do not expect the ECB to change policy this week. Nor do we expect much forward guidance – the ECB is watching the data. Comments will likely emphasise every meeting is live. We think two cuts by yearend is reasonable. This week also brings the final read of the June inflation data. It […]
Dominique Dwor-Frecaut
Summary Growth and inflation have been surprising on the downside, though economic fundamentals remain strong. The Fed sees balanced risk to the employment and inflation legs of its mandate and could cut once in 2024 to lower downside risks to growth. The cut would most likely happen at the November or December FOMC as the […]
Dominique Dwor-Frecaut
Summary June CPI was below market expectations. The most important detail was the long-awaited OER slowdown. Supercore CPI was roughly unchanged from May and somewhat negative, though supercore PCE could be higher. June CPI increases risk of a 2024 insurance cut, though this would likely happen after the 5 November presidential election. Market Implications After […]
Dominique Dwor-Frecaut
Summary Growth is slowing, mainly due to a consumption slowdown. Slower consumption largely reflects a catchup on postponed tax payments in FY2023. The slowdown is likely to self-correct as tax payments normalize and businesses’ economic outlook remains sanguine. Market Implications I still expect no 2024 Fed cut, against the market pricing two by end-year. We […]
Dominique Dwor-Frecaut
Summary June NFPs were higher than expected but May’s were revised lower. Wage growth was unchanged MoM but slowed YoY. Unemployment rose further but I think this does not announce recession as: Employment growth has been resilient. Insured unemployment remains flat. Distribution of unemployment spells is inconsistent with a recession. Rather, the increase in unemployment […]
Henry Occleston
Summary We expect the ECB to cut twice more this year. However, within recent ECB comments on 2024 cuts, one more cut has emerged as most popular. Most important voices have yet to opine, though. The June ECB meeting minutes suggest general agreement that disinflation is underway and a broad capacity to look through bumps. […]
Dominique Dwor-Frecaut
Summary A series of regional Fed research notes highlighting upside risks to inflation reflect the FOMC consensus. The risks of a second Donald Trump presidency have been rising, which supports no Fed cuts in 2024 because of higher 2025 inflation risks. This year the Jackson Hole symposium will be about monetary policy transmission, which the […]
Dominique Dwor-Frecaut
Summary The current account balance will likely weaken further due to: A growing budget deficit and accelerating corporate investment. Strong US growth and dollar. A weaker current account deficit is sustainable but leaves the US exposed to a reversal of the bond flows currently funding it. Market Implications A wider current account reflects growing resource […]
Dominique Dwor-Frecaut
Summary Trump’s polling is as strong as before the guilty verdict and his betting odds are stronger. Trump fundraising has jumped following the trial. Market Implications I continue to expect the Fed to remain on hold until end-2024. Trump Trial: Same Polls, Higher Fundraising Despite spending much less than the Biden campaign, Trump is ahead […]
Henry Occleston
Summary As we expected, the BoE found comfort in the May inflation outturn’s normalisation in wage-intensive services inflation momentum. Recent strength in services inflation was caveated as partly driven by areas that BoE policy will not affect (index-linked or regulated). Downside risks in inflation were mentioned (albeit with mention also of the risk that higher […]
Henry Occleston
Summary Following the cut at their last meeting, ECB speakers mostly agree they are now in cautious data-watching mode. We assess the current data picture across services inflation, wage growth and unit profits. Inflation is trending back towards normality, but services continue to overshoot. Wage growth remains too strong, although evidence of whether this will […]
Dominique Dwor-Frecaut
Summary Private credit is growing strongly but represents only about 10% of financial liabilities in the non-financial corporate sector. Foreigners and to a lesser extent financial companies are the main providers of non-bank loans. Private credit is unlikely to threaten financial stability as corporate leverage aligns with historical trends. By contrast, government leverage has more […]
Dominique Dwor-Frecaut
Summary A new Boston Fed note highlights upside risks to 2024 shelter inflation, based on a positive gap between market rents and CPI shelter costs. While the note expects the gap to close, recent data and anecdotal evidence show market rent inflation is accelerating again, which could see higher shelter inflation. Higher shelter inflation would […]
Henry Occleston
Summary We expect no change in policy at the BoE’s meeting this week, with two voters likely to vote for a cut but the rest to back a pause. Tone could be dictated by the CPI print, which we expect to show inflation ticking back towards MPR forecasts. Our estimate is slightly higher than consensus […]
Dominique Dwor-Frecaut
Summary The FOMC consensus on greater inflation risks is stronger. This reflects unclear inflation trends, sticky shelter inflation, wage growth inconsistent with 2% inflation, and strong growth and labour market. Fed Chair Jerome Powell believes time will tell if the Fed stance is restrictive enough, but data shows policy tightening is not transmitting to the […]
Bilal Hafeez
George Selgin is a senior fellow and director emeritus of the Center for Monetary and Financial Alternatives at the Cato Institute and professor emeritus of economics at the University of Georgia.
Viresh Kanabar
Summary The BoJ is hoping that loose financial conditions will promote the virtuous cycle where stronger wage growth leads to sustainably higher inflation. While progress has been made on the wage front, there is limited evidence that consumption is rising, or that underlying inflation will hold around 2%. Looking ahead, the impact of the income […]
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