Monetary Policy & Inflation | Politics & Geopolitics | US
This article is only available to Macro Hive subscribers. Sign-up to receive world-class macro analysis with a daily curated newsletter, podcast, original content from award-winning researchers, cross market strategy, equity insights, trade ideas, crypto flow frameworks, academic paper summaries, explanation and analysis of market-moving events, community investor chat room, and more.
Summary
- BLS employment growth revisions (3PM UKT, Wednesday) are forecasted to be the largest in 15 years. However, the Fed are well prepped for revisions; Powell has already been vocal on the topic.
- Harris (Thursday) is due to speak on the final day of the DNC. She has already revealed a lot about her economic agenda, so focus may land on further clarity and what type of president she would be. The well-anticipated Harris-Trump debate (10 September) could shift the near equal odds.
- Jackson Hole could deliver an updated r* estimate with the two-day event to cover the effectiveness and transmission of monetary policy. Markets are currently pricing a terminal rate in line with Fed estimates. Powell is due to speak 15:00 UKT, Friday.
Three Key US Events Still to Come This Week
We have a busy second half to the week on our hands. BLS revisions, Kamala, and Powell Friday at Jackson Hole are all due.
BLS Revisions (3PM UKT, Wednesday): Fed Prepped for Revisions
The preliminary estimate for recent job growth is due 15:00 UKT. It replaces an employer survey with more detailed data from state unemployment tax records.
Goldman Sach’s forecast of at least a 600k revision to employment in the 12-month period ending March 2024 has caught everyone’s eyes. This would mean job growth of around 190k a month, down from 240k a month. There are a range of both higher (1mn) and lower (JPM with 360k) estimates. A revision around +/-474k would be considered in line with the past decade. A revision of 501k or more would be the largest in 15 years (beating 2019).
However, none of this should matter a great deal. It provides no new info about employment growth since March, really. And even if there are large revisions, the Fed have already been very vocal on the topic. Notably, Powell in June: ‘there’s an argument that [payroll growth figures] may be a bit overstated.’ Federal Reserve banks also publish estimates. They’re far from oblivious to the number.
Harris at the DNC (Thursday): Control of Senate Will Prove Key
Kamala released the first details of her economic agenda in North Carolina on Friday. We now know she intends to pass a national ban on ‘price gouging’ for food and groceries, as well as provide assistance for first-time buyers, a tax credit for housing developers, child tax credits, a reduction to household taxes, no taxes on tips, a proposal to cancel Americans’ medical debt, 12-week paid leave legislation, a raise to the minimum wage, and continued Fed independence.
She has also backed a plan to raise the US corporate tax rate to 28%, up from 21%. That would mean the US has a higher corporate tax rate than the UK (25%), and would place it as one of the highest among advanced economies. Trump proposed slashing it to just 15%.
However, it all depends on control of the senate. Consensus expects the Republicans to land the lion’s share of the seats. It means we could land in a period of legislative gridlock.
While tomorrow is a somewhat choreographed event, we expect Harris will use the speech to shape public perception of her as a potential president and reveal more about her policy agenda.
Harris’ odds of a win have fallen in the past week. PredictIt continues to favour Harris while Polymarket now favours Trump. It’s close. Ahead, the biggest swing likely comes from a Harris – Trump debate. It’s scheduled for 9PM ET on Tuesday 10 September. There’ll be a VP debate on 1 October, too.
Jackson Hole: Potential for r* Update
Jackson Hole this year will cover the effectiveness and transmission of monetary policy. Powell is due to speak on Friday at 15:00 UKT.
Our view is that the Fed could put forward an updated view on r*. The market is pricing around 3.00-3.25%, roughly in line with Fed estimates. Work that provides a higher estimate could be seen as hawkish – a need to cut less than currently priced.
Elsewhere, political risks and an updated view on financial conditions could be discussed.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)