Dominique Dwor-Frecaut
Summary I expect the Fed to remain on hold, with Warsh avoiding explicit forward guidance while leaving the door open to further hikes. The FOMC recently departed from Warsh’s no-guidance approach, largely to prevent markets from pricing excessive tightening that could weaken growth. Tightening enough to weaken growth would be a consequential step, requiring compelling […]
Viresh Kanabar
Summary The RBA is increasingly focused on the risk that limited spare capacity and elevated short-term inflation expectations generate a more persistent inflation process, arguing for a more pre-emptive policy response. Beyond September, the RBA is likely to pause and assess the impact of tighter financial conditions. Mortgage rates have risen sharply, scheduled repayments are […]
Dominique Dwor-Frecaut
Summary The Fed hiked in line with market expectations. The dot plot signaled mid-cycle recalibration, rather than the start of a tightening cycle, with the median dot showing two 2026 hikes, a hold in 2027, and gradual cuts thereafter. Warsh focused on slow disinflation and upside inflation risks, suggesting further tightening if disinflation does not […]
Dominique Dwor-Frecaut
Summary Low unemployment leaves inflation as the key concern, with disinflation proceeding too slowly. Fedspeak has turned more hawkish, and August CPI likely failed Waller’s test for a September hold. I expect a 25bp insurance hike this month, followed by a hold through 2027 and resumed normalization in 2028. With hindsight, the 2024–25 cuts may […]
Dominique Dwor-Frecaut
Summary I review the Jackson Hole Symposium papers, focusing on tokenization and AI. Tokenization could transform finance by enabling cheaper, atomic, and 24/7 transactions, but scaling it requires access to a safe settlement medium; JH participants favored tokenized central-bank reserves over stablecoins. The ECB and SNB are ahead of the Fed in implementation, potentially giving […]
Dominique Dwor-Frecaut
Summary I am lowering my probability of the Fed remaining on hold through 2026 to 51%, from previously 55%, following Warsh’s more hawkish-than-expected Jackson Hole speech. The 51% probability conveys finely balanced risks, still marginally favoring a hold. Now that Warsh seems to favor a hike, Waller has become the swing voter. If on Thursday […]
Viresh Kanabar
Himino’s Four Factors All Point to Upside Risks on Inflation and Bolster Case for Further Hikes Himino’s importance on the BoJ should not be underappreciated. I often see him as Ueda’s number two due to his closeness to the Governor’s views on many topics. Today’s speech was also important because it was the first since […]
Viresh Kanabar
Summary The BoK hiked 25bp to 3%, with a decisive 6-1 vote, showing that KRW’s 7% rally mattered less than elevated energy prices, robust growth and future inflation risks from AI spillovers. Shin framed the move as pre-emptive tightening, aimed at anchoring inflation expectations and leaning against Seoul housing and household debt before a more […]
Dominique Dwor-Frecaut
Summary I base my Fed view on what the Fed will do, not what it should do. I start with Fedspeak, assess the data outlook, and map both into the Fed’s reaction function. Fed policymaking is fundamentally risk management: slack and inflation are difficult to assess in real time, while R*, financial conditions, and policy […]
Viresh Kanabar
Summary We no longer expect the BoK to hike this week as the 7% decline in USD/KRW has reduced the urgency for a back-to-back move. Since the July meeting, Q2 GDP came in above expectations, core inflation rose to 2.6% YoY, inflation expectations are steady at 2.7%, and financial stability risks remain elevated. On financial […]
Dominique Dwor-Frecaut
Betting markets assign the highest odds to Warsh mentioning AI and long-term Fed reform terms at Jackson Hole, and the lowest to near-term economic and policy terms. Inflation is likely to feature, but the low odds on near-term economic terms suggest it will be framed mainly around the Fed’s commitment to price stability. Table 1: […]
Dominique Dwor-Frecaut
Let’s face it. Deep down I am a contrarian. The louder the anti-Warsh chorus, the stronger the urge to play defense. So here it goes: The Fed’s job is not market happiness but fulfilling the employment and inflation mandate set out by Congress. Policy credibility is not established by acting or talking tough, but by […]
Dominique Dwor-Frecaut
Summary As I expected, the Fed remained on hold, the statement was virtually unchanged, and Warsh continued not to provide guidance on the FOMC economic assessment, reaction function, and policy direction. Markets reacted negatively to the guidance vacuum, interpreting it as a sign of an unwillingness to tackle inflation. Market Implications My base case continues […]
Dominique Dwor-Frecaut
Summary I expect the Fed to remain on hold, with an unchanged statement and dissents from Hammack and Logan. Warsh is likely to stick to his strategy of revealing little about his assessment of the economy, his reaction function, or the future policy path. Market Implications My base case remains Fed on hold until end-2026, […]
Viresh Kanabar
Summary Since the June meeting, the data continues to point to resilient growth, rising inflation expectations, stronger energy/FX-driven price pressures and still-accommodative financial conditions. These three events have pushed Japan’s front-end pricing higher: the Summary of Opinions, Tamura’s June speech and recent reports have all pointed to greater openness to faster normalisation. Tamura matters because […]
Viresh Kanabar
Summary The BoK unanimously hiked 25 bp to 2.75%, as expected, but the focus has shifted from the initial oil/FX inflation shock to demand-driven inflation and financial stability risks. The AI boom is now central to the BoK’s reaction function, with stronger exports and investment leading the Bank to upgrade 2026 growth significantly above 2.6% […]
Dominique Dwor-Frecaut
Summary Warsh has revived money as a policy indicator, but not monetary targeting: his approach is “monetarism-lite,” with money complementing rather than replacing inflation targeting. Velocity is not stable: its long-run decline reflects financialization and banks’ shift away from lending to the real economy, limiting the usefulness of money growth as a policy guide. The […]
Viresh Kanabar
Summary Ahead of Gov Shin’s second meeting on Thursday, we outline four areas to watch: The first question is whether the BoK keeps August live. Shin’s recent speech suggests July is the start of a new hiking cycle, and inflation, growth, FX and housing all argue for faster normalisation towards the 3% six-month dot. The […]
Viresh Kanabar
Summary The BoJ hiked 25bp to 1%, as expected, with Asada dissenting but not materially shifting the Board’s broader balance. The statement and Uchida’s press conference reinforced the message: policy remains accommodative even after the move to 1%. Coupled with recent speeches, the implication is that the BoJ now appears to see 1.5% as the […]
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