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 […]
Dominique Dwor-Frecaut
Summary The Middle East remains tense and hostilities could easily restart and cause an oil price shock. Because the US is a net energy exporter, but oil producers’ spending is limited, an oil price shock would likely see US income increase but US spending decrease, which would improve the external balance. Because of a tighter […]
Dominique Dwor-Frecaut
Summary The Richmond Fed has devised a recession indicator based on jobless claims that is more accurate and timelier than Sahm’s rule. Should continuing claims continue increasing at the pace of the past four weeks, the indicator would signal recession at end-October 2025. By contrast with 2008, this time a continued increase in claims would […]
Dominique Dwor-Frecaut
Summary May CPI was again below expectations. The print shows no sign of second-round effects. Non-tariffed goods and services prices were aligned with or below trend. Therefore, I keep my expectations that inflation will peak at end-2025 and slow thereafter, in line with consensus. Three scenarios would falsify my view: a worsening of the trade […]
Dominique Dwor-Frecaut
Summary May NFPs were higher than expected but employment growth is slowing once revisions are considered. Unemployment was unchanged based on poor quality household (HH) survey data. Other data from a variety of sources show the labour market has started loosening. This aligns with my expectations, so I still expect two-three Fed cuts in 2025. […]
Dominique Dwor-Frecaut
Summary The macro consensus assumes benign inflation and unemployment, which seems inconsistent with the large tariffs supply shock. The consensus seems overoptimistic on trade and fiscal policies, which carry downside growth risks. Weak growth will limit second-round effects from the tariffs, allowing the Fed to focus on employment weakness. The unemployment trajectory I expect suggests […]
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 […]
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