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Goods supply shortages are now easing. Like the recent stabilisation in labour market slack, that improvement has, at least partly, been driven by a slowdown in demand, so it isn’t a sign that economic growth is about to accelerate. But it does support …
1st March 2022
In his speech late last night, Christopher Waller became the first Fed Governor to throw his weight behind St Louis Fed President James Bullard’s call for 100bp of rate hikes by the middle of the year. Nevertheless, we expect Chair Jerome Powell to push …
25th February 2022
Real economy in good health The real economy appears to be in good health, suggesting that the Fed will push on with planned rate hikes starting in March, although the Ukraine conflict makes a 50bp hike less likely. The 1.5% m/m gain in real consumption …
Reflecting the stronger trend in employment growth apparent in the revised payroll data and the collapse in Omicron cases in February, we expect non-farm payrolls to rise by 600,000 this month. The January employment report included significant upward …
24th February 2022
The strong finances of state & local governments suggest that they will continue to increase spending at a rapid pace this year. But that won’t come close to matching the huge economic boost from the $2.5trn federal fiscal stimulus last year, which has …
23rd February 2022
In a week when we learned that producer price inflation, retail sales and industrial production all came in hotter than expected in January, interest rate expectations nevertheless declined, as markets digested a relatively dovish set of minutes from the …
18th February 2022
The further rise in CPI inflation to 7.5% in January and hawkish comments from Fed officials have seen markets rush to price in a series of aggressive interest rate hikes this year. But recent weeks have also brought tentative signs that better news on …
17th February 2022
Further evidence of limited Omicron impact The 1.4% m/m rebound in industrial production in January appears to confirm that the Omicron wave has had surprisingly little impact on the economy. That said, the weakening global backdrop suggests manufacturing …
16th February 2022
Rebound after December seasonal problems The strong 3.8% rebound in retail sales in January is not quite as good as it looks, since it is mainly a recovery from the revised 2.5% drop in December. But with the modest decline in food and drink services …
The news this week that CPI inflation climbed to a new high of 7.5% in January prompted another surge in interest rate expectations. Fed funds futures now puts the odds of a 50bp hike in March at more than 50/50 and are pricing in 160bp of tightening for …
11th February 2022
The upward revision to household employment and the labour force imply that the labour market recovery has been a little stronger than we previously believed, but measures of slack suggest that labour shortages have been stabilising in recent months and …
10th February 2022
Core inflation showing few signs of slowing The 0.6% m/m rise in consumer prices in January was slightly stronger than we had expected and illustrates that, even as the earlier upward pressure from rising energy prices and goods shortages fades, …
Exports and imports set for continued strong growth The solid gains in both exports and imports in December are a signal that global supply chain problems are easing, although the further widening in the trade deficit suggests that net trade will be a …
8th February 2022
As it turns out, employment gains were much stronger than previously thought over the final few months of last year and the Omicron wave did little to slow the pace of growth in January. With the exodus from the labour force apparently smaller than …
4th February 2022
Strong payrolls clear Fed for lift-off The 467,000 gain in non-farm payrolls in January is even stronger than it looks, as it came despite the spike in absenteeism driven by the Omicron virus wave and was accompanied by significant upward revisions to the …
Retirements still explain around half of the shortfall in labour force participation since the pandemic. While the rest of the decline reflects a broad mix of factors, the longer those workers remain out of the workforce, the more likely the fall in …
2nd February 2022
The markets are right to be sceptical of claims that the Fed could begin its tightening cycle with a “shock-and-awe” 50bp interest rate hike next month. At a time when the yield curve is already unusually flat, an aggressive start to the tightening cycle …
Manufacturing escapes Omicron hit The small fall in the ISM manufacturing index to 57.6 in January, from 58.8, suggests the Omicron virus wave hasn’t had nearly as big an impact on the factory sector as implied by some of the early regional surveys or the …
1st February 2022
Powell fuels fears of Ratemaggedon The conventional wisdom is that Fed Chair Jerome Powell left the door open to more than four rate hikes this year in his post-FOMC press conference this week. To our minds that was a bit of a stretch. There is enormous …
28th January 2022
We suspect that the surge in absenteeism linked to the Omicron variant caused non-farm payrolls to fall by 200,000 in January. But with new virus cases now falling sharply, that hit is likely to be mostly reversed in February. The Omicron wave of …
27th January 2022
Stronger growth not a sign of things to come The acceleration in GDP growth to 6.9% annualised in the fourth quarter, from 2.3% in the third, mainly reflects a record surge in inventories, which will be partly reversed in the first quarter of this year. …
The Fed’s announcement that it will “soon be appropriate” to raise interest rates and the numerous hints dropped by Chair Jerome Powell in the post-meeting press conference all but guarantee that a March rate hike is coming. Meanwhile, the Fed set out a …
26th January 2022
The surge in Omicron infections means more people were self-isolating in early-January than at any time since the beginning of the pandemic, although the impact that will have on employment and output remains uncertain. Furthermore, with cases now falling …
24th January 2022
We expect the Fed to deliver some heavy hints at next week’s FOMC that it is planning an interest rate hike in March. With the Omicron wave now past its peak nationally, there is little to hold the Fed back, particularly if next week brings news of a …
21st January 2022
Overview – We expect underlying inflation to remain well above the 2% target this year, which means the Fed will push ahead with four rate hikes even though real GDP growth is likely to disappoint. Core inflation will average 4.3% in 2022 and close to …
20th January 2022
Fed usually flags start of tightening cycle ahead of time Balance sheet run-down likely to come sooner and be more aggressive than 2017/18 FOMC will have more hawkish tilt until Biden’s nominees are confirmed With many Fed officials now either explicitly …
19th January 2022
The continued surge in Omicron infections suggests that the disappointing December activity data will be followed by further weakness in January, but there are no signs that it will delay the Fed’s accelerating plans to tighten policy. This week’s Senate …
14th January 2022
Omicron absenteeism weighs on output The 0.3% m/m decline in manufacturing output is probably a sign that Omicron-related employee absenteeism was already weighing on output by the end of last year. We expect an even bigger hit in January but, assuming …
Collapse in control sales partly reflects seasonal adjustment issue The 1.9% plunge in retail sales in December in part reflects what appears to be a problem with seasonal adjustment process around the holidays. The initial Omicron wave appears to have …
The incredibly strong gains in the household survey measure of employment over the final two months of last year, which have come at the same time as the more closely-watched payroll measure showed employment growth slowing, is mainly a catch-up effect. …
12th January 2022
Inflation hits 40-year high of 7% CPI inflation hit a 40-year high of 7.0% in December and, although the headline rate has probably peaked now, core CPI inflation increased to 5.5% last month and will continue to climb toward 6% over the coming months. …
In his Senate re-nomination hearing today, Fed Chair Jerome Powell echoed the increasingly hawkish rhetoric coming from other officials. He admitted that "supply side constraints have been very consistent and very durable" and that the Fed was "not seeing …
11th January 2022
Omicron tsunami shows few signs of peaking The surge in Omicron infections has quickly developed into a full-blown tsunami, with the seven-day national average now close to 600,000 – three times higher than the previous peak last winter. (See Chart 1.) …
7th January 2022
Full employment to drive sustained rapid wage growth While the 199,000 gain in non-farm payrolls once again disappointed the consensus, a much larger gain in the household measure of employment and a tepid rise in participation pushed the unemployment …
As hinted at in the December FOMC minutes, we expect the Fed will begin shrinking its balance sheet later in 2022. They would start by allowing maturing assets to run off, but if longer-term bond yields were to remain unusually low, we expect officials …
6th January 2022
Net trade was a drag on fourth quarter GDP after all The sharp rebound in the trade deficit in November means that net trade is now on track to be a small drag on economic growth in the fourth quarter, rather than a small boost as we had previously …
The Omicron variant is less lethal than previous strains but, even if it doesn’t require the reintroduction of restrictions to mitigate the spread, the huge volume of new cases could still deal a significant hit to the economy over the next month or two, …
5th January 2022
We expect inflation to remain stubbornly high in 2022, forcing the Fed to tighten monetary policy aggressively even though real economic growth underwhelms. The chances of additional fiscal stimulus have dwindled and will drop off the table entirely if …
Survey too early to capture Omicron disruption The ISM manufacturing index suggests that the pace of industrial activity growth remained reasonably solid at the end of last year, but the survey came too early to capture the potentially significant supply …
4th January 2022
The chaos caused by the rapid spread of the Omicron variant came too late to have much effect on December payrolls, which we estimate increased by a healthy 350,000. But the huge numbers of people being told to isolate could drive a significant drop in …
Falling real incomes & virus drag point to consumption slowdown The November durable goods and income & spending data are consistent with our estimate that fourth-quarter GDP growth was 6.5% annualised, but point to a slowdown in early 2022. Strong gains …
23rd December 2021
The Omicron variant has supercharged the seasonal wave of virus cases sweeping parts of the US, adding to the existing headwinds to consumption growth over the coming months. (See Chart 1.) In contrast to governments in Europe, however, there are still …
21st December 2021
Market pricing suggests investors remain unconvinced that the now-hawkish Fed will hike interest rates as high as officials are projecting, either because inflation will drop back more quickly or because real economic growth will falter. In this case, we …
17th December 2021
Output rising as shortages ease The solid 0.7% increase in manufacturing output last month suggests that shortages are gradually easing. With demand still strong, the latest surveys are still consistent with manufacturing output expanding at a near-5% …
16th December 2021
The Fed delivered an even more hawkish shift at the December meeting than we had anticipated, with the pace of tapering doubled and officials now forecasting three rate hikes next year. Reflecting that new tone, we now expect the Fed to raise rates three …
15th December 2021
Shortages partly explain weak start to Holiday season With prices rising sharply last month, the muted 0.3% m/m rise in retail sales values suggests that consumption was little changed in real terms. That won’t stop the Fed from accelerating the pace of …
QE to end sooner and more rate hikes in forecast Following Chair Jerome Powell’s markedly more hawkish tone at his recent congressional testimony, markets are braced for the Fed to pivot hard at next week’s FOMC meeting. Futures pricing suggests there is …
10th December 2021
Inflation hits near 40-year high Consumer prices rose by 0.8% m/m in November, taking the annual CPI inflation rate up to a near 40-year high of 6.8% but, with energy prices falling sharply in recent weeks, last month probably marked the peak. The same is …
The rebound in the job openings rate close to a record high in October means that the number of unemployed Americans per job opening fell to its lowest level since the early 1950s. (See Chart 1.) That underlines the tightness of labour market conditions …
8th December 2021
Fed markedly shifts stance, with inflation no longer seen as transitory Taper will be stepped up – asset purchases to end in spring rather than summer We now expect two hikes in 2022, followed by four hikes in 2023 In sharp contrast to the surprisingly …
