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 […]
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 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 […]
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 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 […]
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