Dominique Dwor-Frecaut
Summary A bottom-up assessment of monetary policy transmission suggests policy fine-tuning would be difficult. Residential investment is the demand component most responsive to funding costs but accounts for only 3.5% of GDP. The Fed impacts consumption, which accounts for 70% of GDP, mainly through equity and home prices rather than through funding costs. Non-residential investment […]
Dominique Dwor-Frecaut
Summary Core and headline CPI were above market expectations. OER inflation slowed but core goods and supercore services inflation accelerated. Nevertheless, the disinflation trend continued. Market Implications I still expect the Fed to cut twice more in 2024. Another Upside Surprise September core and headline CPI prints surprised on the upside, as Sam’s model predicted […]
Dominique Dwor-Frecaut
Summary A soft landing appears less likely now than in the mid-1990s as: This time the output gap is positive against negative in the 1990s. The Federal Reserve (Fed) was much more proactive in the 1990s. The Fed has tightened more but policy transmission has been weaker this time. Deglobalization, worker power, and fiscal policy […]
Dominique Dwor-Frecaut
Summary NFPs again surprised on the upside by a wide margin. The release details show the labour market tightened in September. This may reflect the end of the 2022-24 immigration surge that allowed for disinflation with strong growth. Ahead, the Fed could start facing the traditional employment vs inflation trade-off. Market Implications I still expect […]
Dominique Dwor-Frecaut
Summary US dockworkers in ports accounting for 60% of maritime freight have gone on strike. The impact on growth and inflation is likely to be limited as any deep disruption would likely see the Biden administration intervene. Market Implications I still expect two more 25bp Federal Funds Rate (FFR) cuts in 2024. Dockworkers on Strike […]
Macro Hive
Summary A Republican sweep (red WH and Congress) could result in stagflation and force the Fed to hike. Meanwhile, a Democratic sweep (blue WH and Congress) would likely align with the Fed’s current projections. Market Implications A Trump victory would likely lead to bear steepening in the yield curve, and a stronger USD especially vs […]
Dominique Dwor-Frecaut
Summary Vice President Kamala Harris is struggling to widen her small lead over presidential nominee Donald Trump but continues to outraise him. Should Harris win, pollsters expect a red Congress while betting markets see a blue or split Congress as most likely. Market Implications I still expect the Fed to cut two more times in […]
Dominique Dwor-Frecaut
Summary The National Bureau of Economic Research (NBER) can declare a recession even without two consecutive quarters of GDP contraction, a common definition. The economic indicators the NBER uses to identify recession clearly signal the economy is currently expanding. Leading indicators do not suggest a forthcoming recession though their track record is mixed. Market Implications […]
Dominique Dwor-Frecaut
Summary The Fed has cut 50bp and lowered the FFR path despite risks of inflation stickiness. The Fed move shows strong sensitivity to employment data. The Fed is likely to cut sooner and more if NFP and unemployment are weaker than it expects but may not react to weaker NFPs if they are accompanied by […]
Dominique Dwor-Frecaut
Summary The FOMC cut more than consensus expected but roughly aligned with my expectations. The recent non-farm payroll (NFP) slowdown and buildup of policy ammunition mainly drove yesterday’s decision, thanks to the Federal Reserve (Fed’s) so far patient attitude towards easing. The Fed is likely to bring forward its planned easing if employment risks increase […]
Dominique Dwor-Frecaut
Summary Vice President Kamala Harris’ nationwide popularity is increasing but she is still within the margin of error in the swing states. The Democrats still appear likely to lose the Senate while the House could be in play. Market Implications I expect the Fed to cut 50bp this week, 100bp this year and 150bp next […]
Dominique Dwor-Frecaut
I am changing my Fed call to a 50bp cut this week, 100bp in 2024 and 150bp in 2025, from previously 25bp, 75bp and 100bp respectively. A key reason is that market pricing of 50bp has increased following the WSJ’s Timiraos stating that 50bp was a close call. If the Fed cuts less, they will […]
Dominique Dwor-Frecaut
Summary Core MoM CPI was above market expectations while the rest of the release was in line. OER and supercore services inflation accelerated from July while goods prices continued falling. Yesterday’s print is unlikely to shift the Federal Reserve (Fed’s) focus on employment rather than on inflation risks. Market Implications I expect the Fed to […]
Dominique Dwor-Frecaut
From a Fed perspective, the CPI is not this week’s most important release. This is because the CPI is unlikely to be much different from the consensus 0.2% MoM for core (see Sam’s model). More importantly, CPI and PPI are unlikely to yield a core PCE print estimate much different from the 0.2% MoM the […]
Dominique Dwor-Frecaut
Summary August employment data was mixed. Payrolls missed and July was revised down but unemployment fell and wage growth accelerated. However, detailed data analysis shows a still tight labour market. The tightening of the border since June could explain the combination of slower NFP growth and lower unemployment, and the acceleration in wage growth. Market […]
Dominique Dwor-Frecaut
Summary It is not my base case scenario, but the combination of resource pressures and disinflation suggests a risk the US could be going back to pre-pandemic low inflation. A recent paper by two Federal Reserve (Fed) economists argues low inflation pre-pandemic reflected low worker bargaining power and high business market power. If so, neither […]
John Tierney
Summary Whatever the official stats say, there is nothing quite like the reality check of a cross-country drive to get the pulse of the day-to-day economy Driving from California to New Jersey this summer, I did not see any major signs of recession. There were a large number of Hispanic immigrants across the agricultural Midwest […]
Dominique Dwor-Frecaut
Summary The preliminary estimate of the annual benchmark revisions to the nonfarm payrolls (NFPs) was negative and large. This could reflect a bias in the Bureau of Labor Statistics’ (BLS’s) forecast of job flows associated with business births and deaths. Because they are based on unemployment insurance, the benchmark revisions are likely to miss the […]
Dominique Dwor-Frecaut
Summary Vice President Kamala Harris is polling ahead of presidential candidate Donald Trump but remains within the margin of error. Harris’ policies involve stronger competition policies as well as social spending to be funded by unspecified taxes on wealthier Americans and businesses. Even if Harris wins the White House, she will likely face a split […]
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