Dominique Dwor-Frecaut
Summary The Fed is likely to cut 25 basis points, as well as end QT, without committing to a cutting cycle. Market Implications In line with market consensus, I continue to expect two more cuts in 2025. I also expect three 2026 cuts, which is greater than current expectations (2.5 cuts). Cut Without Guidance At […]
Dominique Dwor-Frecaut
Summary In this note, I show that the data does not validate fears of systemic credit weaknesses: Large businesses are in good financial shape, in part due to record profits. By contrast SMEs and low-income households are struggling, which is reflected by rising delinquency rates in specific loan segments. Banks, however, have managed their risk […]
Dominique Dwor-Frecaut
Summary In my view disinflation with strong equity market performance is likely to continue. A post-pandemic productivity pickup is translating into lower labour costs rather than into higher wages, which supports further disinflation but adds downside risks to growth. The income share of profits is continuing to rise, which is translating into rising equity market […]
Dominique Dwor-Frecaut
Summary I provide a short description (and abundant data evidence) of a strong disinflationary driver largely overlooked by consensus: the weakening of workers’ bargaining power, recently highlighted by two Fed economists. Together with tariffs stability and a weak residential market, it gives me conviction that inflation next year is likely to surprise on the downside […]
Dominique Dwor-Frecaut
Summary Governor Miran’s view on the 2% inflation target and the Fed’s operational framework could turn out more market moving than his call for six 2025 cuts. Market Implications I am still expecting two more 2025 cuts. Three Key topics In his first interview as Board Governor on Friday, Miran announced he would present a […]
Dominique Dwor-Frecaut
Summary Actual US tariffs continue falling well below policy announcements, possibly because the Trump administration is quietly lowering them. Real wage growth has fallen by half as nominal wage growth is lagging the increase tariffs-induced inflation increase. Fed policy and administration wishes could be converging because data supports easier Fed policy, but ultra-loose Fed policy […]
Dominique Dwor-Frecaut
Summary August CPI roughly aligned with expectations. Core goods and supercore services were mixed, with some items seeing falling inflation and some rising inflation. OER inflation accelerated but this is more likely noise than signal as the residential market remains weak. Against a backdrop of stable inflation trends and stable long-term inflation expectations, a 50bp […]
Dominique Dwor-Frecaut
Summary Markets are currently pricing only 10% risk of a 50bp Fed cut next week. Before CPI, I think risks are near but below 50%. Recent data shows the labour market is weaker than earlier thought as well as rising downside employment risks. Overall, the labour market is in worse shape than a year ago […]
Dominique Dwor-Frecaut
Summary NFPs were much lower than expected but unemployment increased only marginally due to lower immigration and labour supply growth. The report indicates downside risks to employment. Despite much slower labour supply growth, wage growth continued slowing, which supports disinflation but is negative for growth. A 50bp September Fed cut is likely if the QCEW […]
Dominique Dwor-Frecaut
Summary Bottom-up and top-down analysis suggest the US economy is not accelerating, despite recently better data. This makes little difference to markets as equity markets are more driven by AI sentiment than by GDP growth. Even if I am wrong and growth is accelerating, the acceleration is unlikely to be strong enough to fundamentally change […]
Dominique Dwor-Frecaut
Summary The AI revolution’s footprint has so far been much bigger in markets than in the real economy. The Magnificent Seven’s extremely large capex spending has a high import component that limits its GDP impact. IT employment is gently falling but represents only about 2% of private employment. As AI adoption spreads to the whole […]
Dominique Dwor-Frecaut
Summary The fiscal stance has tightened since January, but this seems unlikely to last as some expenditure cuts are being litigated. Also, the increase in US tariff revenues has slowed considerably. Tariffs provide the Trump administration with additional policy flexibility, which it could use to implement stimulus if growth remains slow (my base case). Long […]
Dominique Dwor-Frecaut
Summary July CPI roughly aligned with expectations. The passthrough from US tariffs to goods was weaker than in June. Shelter costs were marginally higher but will slow further due to weakening rental and property markets. An acceleration in supercore inflation was driven by medical costs, perennial outperformers, and by a bunching of increases in other […]
Dominique Dwor-Frecaut
Summary US growth is likely to remain below 1.5% over the next year or so due to immigration collapse and consumer debt stabilisation. The Trump administration is likely to react through fiscal stimulus as monetary policy will likely remain beyond its reach. Because the growth slowdown is partly supply driven, a fiscal stimulus could bring […]
Dominique Dwor-Frecaut
Summary NFPs were lower than expected and previous months were massively revised down. Labour supply contracted further due to the decline in migrant workers and to native population aging. Unemployment aligned with expectations at 4.2%, up 0.1ppt relative to June and other indicators also indicated a weaker balance between labour demand and supply. Average hourly […]
Dominique Dwor-Frecaut
Summary Stablecoins (SCs) expansion is likely to accelerate with Congress’ adoption of the GENIUS Act, which will provide a much-needed regulatory framework. SCs are unlikely to reach a scale where they would displace traditional money as SCs are a niche means of payments and cannot pay interest. Medium term, traditional money is likely to be […]
Dominique Dwor-Frecaut
Summary June core CPI was below expectations. Passthrough from tariffs to goods was stronger this time but there was no evidence of inflation contagion to non-tariffed goods or to services. Medical care prices (largely administered) drove a limited acceleration in services inflation. Nevertheless, the pre-tariff trend of goods inflation acceleration resumed while inflation pressures from […]
Dominique Dwor-Frecaut
Summary NFPs were higher than expected but half of the increase came from the government sector, with private NFPs below expectations. June’s labour supply continued weakening following the end of the immigration surge. Labour demand and supply weaknesses roughly balanced out with the unemployment rate 12bp lower. Wage growth slowed further, which made for slower […]
Dominique Dwor-Frecaut
Summary Equity and bond market pricing of the US economic outlook could only be consistent under the ‘Goldilocks’ economic conditions prevailing during 2022-24’s immigration surge. But immigration has collapsed, which is likely to cause ‘stagflation-lite’ economic conditions. Soft private sector demand due to weak confidence will dampen inflationary pressures in 2025. The fiscal stimulus Congress […]
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