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 […]
Dominique Dwor-Frecaut
Summary Relative to end-2024, banks reserves are up about $100bn. This reflects the reinstatement of the debt ceiling on 1 January, which forces the Treasury to run down its balance at the Treasury to fund the deficit. The reserves increase likely will not last as January tends to be a cash surplus month for the […]
Dominique Dwor-Frecaut
Summary Much higher than expected NFP and other data sources show still-strong labour demand. By contrast, labour supply seems to be peaking and will likely suffer from fewer migrants under the incoming administration. Various indicators point to an already tight labour market, with signs the economy could be running out of easily employable workers. While […]
Dominique Dwor-Frecaut
Summary Ongoing Los Angeles (LA) fires are causing large-scale destruction of housing, infrastructure and production assets, with uncertain and costly reconstruction. The fires highlight the impact of climate change as a negative supply shock and cast doubts on the Fed’s hopes that above target services inflation can be offset with below target goods inflation. Market […]
Ben Ford, Bilal Hafeez
Summary Trump will be sworn in on 20 January at 12PM ET (5PM UKT). He is expected to deliver over 25 executive orders on his first day in office. This aligns with the new direction US presidents are taking to deliver early results. The first wave of orders is rumoured to focus on initial tariff […]
Dominique Dwor-Frecaut
Summary CPI was in line with expectations. Goods deflation stopped, shelter slowed and supercore inflation accelerated somewhat. Trend measures show inflation is becoming stickier. Market Implications I continue to expect the Fed to cut 25bp in December, in line with markets pricing 95% risk. I expect the Fed to remain on hold in 2025, against […]
Dominique Dwor-Frecaut
Summary We still know little about the incoming Donald Trump administration’s key policies, budget deficit, tariffs and immigration. Key economic nominees so far suggest a focus on both market performance and median household income growth. These need not conflict if growth remains high enough, but we need information to assess whether this is a realistic […]
Dominique Dwor-Frecaut
Summary NFP printed 227k, roughly in line with consensus of 220k. This was more than the 150k I expected but does not change my expectations of a medium-term decline in NFP to about 50k. The labour market remained tight and wage growth stuck at 4% but the ongoing productivity acceleration makes this consistent with 2% […]
Dominique Dwor-Frecaut
Summary Fed Chair Jerome Powell has signalled he intends to keep inflation within its current range. He likely intends to implement opportunistic disinflation, a Fed strategy from the 1990s that relies on disinflationary shocks to lower inflation. But today’s macro backdrop is less favourable compared with the 1990s, suggesting the desired disinflationary shocks may not […]
Dominique Dwor-Frecaut
Summary The incoming Treasury Secretary will likely have two key priorities. First is funding the government: expect lower bill issuance and a lower TGA target at the February QRA. Second is enacting Trump’s electoral promises, which will probably widen the budget deficit. Market Implications Likely fiscal stimulus adds to my conviction of no cuts in […]
Dominique Dwor-Frecaut
Summary Recent NFP prints and pre-pandemic CBO projections suggest sub-100k NFPs could be the new normal now the immigration surge is over. If so, a large negative surprise at the 6 December NFP release is likely, which would rekindle recessions fears and expectations of Fed cuts. I expect the Fed to respond with a cut […]
Dominique Dwor-Frecaut
Summary US CPI aligned with expectations. Goods continued deflating, housing accelerated, and supercore inflation slowed. Trend measures show inflation becoming stickier. Market Implications I still expect the Fed to cut 25bp in December, aligning with markets pricing 80% risk. I expect the Fed to remain on hold in 2025, against markets pricing about two cuts. […]
Dominique Dwor-Frecaut
Summary On the eve of election day, betting markets and polls show Vice President Kamala Harris and presidential candidate Donald Trump neck and neck. The Harris campaign has greatly outraised the Trump campaign, and the former has a much larger cash balance to spend on the last few weeks of the campaign, which could bring […]
Dominique Dwor-Frecaut
Summary NFP printed at 12k, below 100k consensus. The low print reflects mainly the impact of strikes and lower immigration, and to a lesser extent the hurricanes. The labour market remained tight and wage growth accelerated. Wage growth is likely to remain sticky as the immigration surge is over and union militancy seems stronger than […]
Dominique Dwor-Frecaut
Summary We travel into the future and publish a policy letter from the Treasury Secretary nominee to President-elect Donald Trump arguing that: Inflation should be kept below 3% through: Keeping policy changes simple and predictable. No increase in the budget deficit. Strong competition policy. Letting the Fed be the Fed. Productivity should be raised through […]
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