Dominique Dwor-Frecaut
Summary Following below-expectations CPI and above-expectations jobless claims, I now expect next week’s 2025 and 2026 dots to show two cuts each, from one and three cuts in my Fed preview. It is too early for the FOMC to form a view on the impact on the outlook of Israel’s most recent attack on Iran. […]
Dominique Dwor-Frecaut
Summary May CPI was again below expectations. The print shows no sign of second-round effects. Non-tariffed goods and services prices were aligned with or below trend. Therefore, I keep my expectations that inflation will peak at end-2025 and slow thereafter, in line with consensus. Three scenarios would falsify my view: a worsening of the trade […]
Dominique Dwor-Frecaut
Summary Since May’s FOMC, soft data weaknesses have started transmitting to hard data and the impact of tariffs on inflation has been limited, though it is early days. FOMC members’ overall objective is to prevent a de-anchoring of long-term inflation expectations and a permanent inflation increase. The SEP is likely to still show a soft-landing […]
Dominique Dwor-Frecaut
Summary May NFPs were higher than expected but employment growth is slowing once revisions are considered. Unemployment was unchanged based on poor quality household (HH) survey data. Other data from a variety of sources show the labour market has started loosening. This aligns with my expectations, so I still expect two-three Fed cuts in 2025. […]
Dominique Dwor-Frecaut
Summary The macro consensus assumes benign inflation and unemployment, which seems inconsistent with the large tariffs supply shock. The consensus seems overoptimistic on trade and fiscal policies, which carry downside growth risks. Weak growth will limit second-round effects from the tariffs, allowing the Fed to focus on employment weakness. The unemployment trajectory I expect suggests […]
Dominique Dwor-Frecaut
Summary Post-‘Liberation Day’ inflation and available hard economic data have been soft. Policy uncertainty has fallen but remains high. Inflation expectations have fallen or remain consistent with the 2% Fed target. The Fed has turned hawkish, possibly due to limited post-tariff data availability and to a perceived need to assert its independence. With data softness […]
Dominique Dwor-Frecaut
Summary The US Court of International Trade has ruled most Trump 2.0 tariffs as illegal. However, the Trump administration has appealed and is likely to get a stay of the court decision until the case reaches the Supreme Court, which may not happen until autumn at the earliest. Meanwhile, the ruling adds to economic uncertainty […]
Dominique Dwor-Frecaut
Summary A US Treasury crisis is unlikely but not impossible. Here, I run a pre-mortem (i.e., assume a crisis has happened and work backward to identify likely causes). Two decades of loose fiscal policies and structural changes to the demand for Treasuries have placed the US in the danger zone, though that is not enough […]
Dominique Dwor-Frecaut
Summary Last week’s US-China deal has lowered tariffs but only dented policy uncertainty, which remains exceptional. As a result, I have lowered my probabilities of recession. There are early signs the tariff impact could be more benign than I expected. April CPI was below expectations largely due to still low tariffs, implementation lags, intermediaries absorbing […]
Dominique Dwor-Frecaut
Summary April CPI was below expectations but higher MoM than in March. There was limited pass through from tariffs to core goods. The uptrend in goods prices flattened. OER continued slowing. Supercore inflation continued its marked slowdown, largely driven by airlines choosing volume over margins and by wage disinflation facilitated by falling energy prices. CPI […]
Dominique Dwor-Frecaut
Summary The Fed remained on hold as expected, but the meeting’s tone was more hawkish than I anticipated. The Fed will not cut until soft data weaknesses appear clearly in hard economic data. This creates a risk of falling behind the curve and of perceptions of political bias. Market Implications My base case remains a […]
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 […]
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. […]
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 […]
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 […]
Richard Jones
Summary US short-end yields have been wild this month, with prices rallying and sliding with every White House policy zigzag. The 2-yr US Treasury (UST) yield is now very near the middle of April’s MTD range (~3.65%/~3.95%). Technicals on US short-end futures contracts are neutral, very near the middle of the 30 (oversold)/70 (overbought) RSI […]
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 […]
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. […]
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 […]
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