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Monetary Policy & Inflation / / see more…

  1. FOMC: Scenario Analysis

    Antonio Del Favero, Dominique Dwor-Frecaut, Richard Jones

    Summary Our base case is no cut, but the Fed takes note of the greater downside risks to growth and signals it will remain well-positioned to address either leg of its mandate. Fed slows quantitative tightening (QT) to ease the funding strains emerging in the RP market. Despite low PCE and negative GDP, we think […]

  2. BoE Preview: Too Soon to Accelerate Cuts?

    Henry Occleston

    Summary We expect the MPC to cut 25bp this week, with Dhingra and possibly Taylor backing a larger cut. Forecasts are likely to be more dovish on tariffs, low energy costs and undershooting wage growth. This and broader tariff uncertainty will add to a dovish tone in the statement – but we do not expect […]

  3. Labour Market Monitor: April’s NFP Reflects Old Trade Regime

    Dominique Dwor-Frecaut

    Summary April’s NFP do not tell us much about the new trade regime because the data was collected before the bulk of the tariffs were in effect. NFP were 177k, above consensus’ 138k. Migrant workers continued adding to labour supply as deportations are running below FY2024, but the long-term goals of immigration policy remain unclear. […]

  1. FOMC Preview: Fed to Turn Dovish

    Dominique Dwor-Frecaut

    Summary The Fed can focus on its mandate now Chair Powell is no longer at risk of getting fired, which increases the chance of a rate cut. It is unclear the Fed still needs to wait for more information on the Trump administration policies because no matter what these turn out to be, their impact […]

  2. Dom’s Quick Take: MH Fed LLM Signals Rising Risks of June Fed Cut

    Dominique Dwor-Frecaut

    Summary Macro Hive’s Fed LLM Sentiment Index shows the Fed is turning more dovish, by contrast with earlier in the year when the Fed was noticeably more hawkish than the markets. This likely reflects three factors: Trump administration has turned the tables on the Fed. Benefits of the Fed’s ‘wait-and-see’ stance have become uncertain. Employment […]

  3. End of Student Debt Forbearance to Add Downside Risks to Growth

    Dominique Dwor-Frecaut

    Summary The Trump administration is ending the forbearance on student loans. Student debt is falling. College is too expensive! Still, debt repayments could increase by about 0.75ppt of disposable income. I expect consumption to fall but by less than the increase in debt service, largely because many households barely get by and are likely to […]

A Framework for Navigating Structural Uncertainty

Dominique Dwor-Frecaut

Summary Rather than ‘an economic nuclear winter’ the endpoint for the US economic trajectory is likely a deal of sorts with trading partners. The US can get there with or without a recession. I see only a 20% chance of getting there without recession largely due to a lack of consensus among Trump administration officials. […]

Fed Monitor: 150bp Cuts to Start Mid-2025

Dominique Dwor-Frecaut

Summary A US recession is likely unless the Trump administration moves towards sustainable and predictable tariff policies. The tariffs will lift the price level by at least 1ppt while the long-term impact on inflation is uncertain. The Fed is likely to cut by about 150bp as the recession will reduce the long-term impact of tariffs […]

  1. Inflation Monitor: Cost Pressures to Mount, Demand Pressures to Weaken

    Dominique Dwor-Frecaut

    Summary March CPI was 20bp MoM lower than expected with large declines in used cars and core services ex housing pulling down the index. Trend inflation remains stable to upwards. Short-term Inflation expectations continue rising but long-term market-based expectations, which matter most to the Fed, remain stable. Cost pressures are about to increase with the […]

  2. Change of Call: Fed to Cut 150bp Due to Recession

    Dominique Dwor-Frecaut

    Summary A 2025 recession is likely due to the extraordinary increase in tariffs and policy uncertainty, with the pause in tariffs implementation likely to move the onset to Q2 from Q1. The recession is likely to last about three quarters with unemployment increasing by about 2.5ppts. I expect the Fed to cut as the recession […]

  3. Change of Call: One Fed Cut in 2025 as Tariffs to Hit Growth, Inflation

    Dominique Dwor-Frecaut

    Summary NFPs were higher than expected though the trend remains unclear. Labour supply growth remained weak. Most measures indicate unchanged labour market utilization (i.e., full employment). Real wage growth had been accelerating but is about to slow due to tariffs-induced inflation acceleration. I am changing my Fed call to one 2025 cut due to the […]

Trump’s Tariffs Shock

Dominique Dwor-Frecaut

Summary Yesterday’s tariff announcement reduced policy uncertainty but was of such magnitude that it created new economic downside risk. The tariffs will lift inflation, though it is uncertain by how much and for how long. The tariffs will likely lead to a contraction in manufacturing output and employment, with an ambiguous impact on the trade […]

Fed Balance Sheet Already Too Small?

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 […]

  1. AI Reflections: Which LLM Performs Best? Our Benchmark Says Fine-Tuning Wins

    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 […]

  2. BoE Review: A High Bar to Rock the Boat

    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 […]

  3. FOMC Review: Keeping Policy Optionality and Markets Happy

    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 […]

FOMC: Preview and Scenario Analysis

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 […]

BoE Preview: No Cut, But Voting Pattern Could Surprise

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 […]

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