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 […]
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 […]
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 […]
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 […]
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 […]
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 […]
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 […]
Dominique Dwor-Frecaut
Summary With the new USTR now fully in place, and with the Trump administration aware it needs more disciplined policy messaging, tariff policy is about to become more process driven. This could restore some private sector confidence and spending because the drama and chaos over tariff policies has exaggerated the importance of the manufacturing sector. […]
Dominique Dwor-Frecaut
Summary February CPI surprised on the downside but did not change my big picture view of inflation, stuck about 1ppt above the Fed’s 2% target. However, risk exists the Trump administration’s policies could raise costs and weaken demand, with uncertain inflation impact but a negative growth impact. Market Implications I keep my call for no […]
Dominique Dwor-Frecaut
Summary A surge in policy uncertainty is starting to undermine growth while inflation risks remain tilted to the upside. On the eve of the pre-meeting blackout, with the SPX already down 6%, Fed Chair Jerome Powell indicated a continuation of the Fed’s wait and see stance. Market Implications I still expect no cuts in 2025 […]
Dominique Dwor-Frecaut
Summary The surge in policy uncertainty has not impacted the labour market much yet. Nonfarm payrolls (NFP) were lower than expected for the second month in a row, but this could reflect data choppiness and residual seasonality. Labour supply growth remained weak. Most measures of labour market utilization indicate a still tight market. Nominal wage […]
Dominique Dwor-Frecaut
Summary President Donald Trump aims to reverse the decline in the income share of lower income Americans. If successful, this could create a macro regime change with higher growth and inflation as well as a steeper Phillips curve: The market consequences of the macro regime change include: Higher real yields. Ending US equity markets outperformance. […]
Dominique Dwor-Frecaut
Summary Yesterday’s swing in the Atlanta Fed Q1 GDP nowcast to -1.5% QoQ SAAR from 2.3% reflects a swing in imports caused by expectations of tariff increases. By contrast, the nowcast for final domestic demand growth remained positive, though well below actual Q4 GDP growth. The slowdown likely reflects higher consumer savings caused by concerns […]
Dominique Dwor-Frecaut
Summary Net Fed tightening has not changed financial conditions much and growth remains well above trend. Strong consumption largely reflects the impact of the 2022-24 immigration surge and government-funded household deleveraging during the pandemic. Strong corporate investment reflects strong cash flow rather than increased leverage. The above suggests growth is more at risk from negative […]
Dominique Dwor-Frecaut
Summary Since the 29 January FOMC, data releases have generally been towards increasing inflation risks. Transmission of Fed easing to the real economy has been unequal. Household wealth has risen but credit growth remains weak. Recent Fedspeak shows the FOMC are wondering whether policy is restrictive enough. This creates risk the Fed could end its […]
Dominique Dwor-Frecaut
Summary For all of DOGE fanfare, the Treasury daily cash balance does not show a decline in expenditures. This is because DOGE is an auditing rather than a budgeting outlet. Congress does budgeting and the current budget resolution shows fiscal consolidation is to come mainly from the faster growth engineered by the administration’s economic policies, […]
Dominique Dwor-Frecaut
Summary January’s CPI upside surprise did not change my big picture inflation view, stuck at about 1ppt above the Fed’s 2% target. Market and survey-based inflation expectations continued rising in January. Inflation trends remained stable and high. Evidence of cost pressures rose with unit labour costs increasing. Domestic demand pressures are raising inflation, though this […]
Dominique Dwor-Frecaut
Summary Nonfarm payrolls (NFPs) were lower than expected but an upward revision to December made up for the shortfall. Overall, the past month’s data still indicates strong labour demand and further labour market tightening. Annual data revisions provided a one-time statistical lift to labour supply, but the underlying fundamentals remain weak. Wage growth has been […]
Dominique Dwor-Frecaut
Summary Tariff increases are likely to proceed on two tracks. The long-term track is broad based, gradual and meant to generate revenues and support reshoring. Meanwhile, the ‘opportunistic’ track is country specific, aggressive and meant to exert leverage on trade partners. The ongoing ‘opportunistic’ tariff increase has created new policy uncertainty and delayed this year’s […]
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