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Fed officials will have been eyeing the flood of red on their screens this week with a growing sense of foreboding. Admittedly, for GDP growth to slow and inflation to fall, they want financial conditions to tighten, which includes lower equity prices, a …
13th May 2022
Fed moving expeditiously The Fed’s policy statement this week warned that the FOMC is “highly attentive to inflation risks” and, as a result, in his post-meeting press conference Chair Jerome Powell acknowledged that “there is a broad sense on the [FOMC] …
6th May 2022
We doubt that the unexpected 1.4% annualised decline in first-quarter GDP will stop the Fed from hiking its policy rate by a bigger 50bp next week or from launching quantitative tightening. The Fed will stress the ongoing strength of employment growth, …
29th April 2022
With Fed officials seemingly competing to try and sound more hawkish than their peers, a 50bp rate hike next month appears nailed on – even though this week also brought further tentative signs that inflation is set to ease soon. Fed readying …
22nd April 2022
8.5% inflation marks the peak The news that core prices rose by a more modest 0.3% in March, even as higher energy prices drove headline inflation to a 40-year high of 8.5%, explains why investors pared bets this week on how far interest rates would rise. …
14th April 2022
The age of turbulence all over again As it was with Alan Greenspan, we suspect that, although he still receives favourable reviews now, history will judge Jerome Powell’s tenure as Fed Chair far more harshly. With the benefit of less than 24 months of …
8th April 2022
Yield curve inversion adds to recession fears The inversion of the 10y-2y Treasury yield spread this week led to predictable speculation that the Fed’s interest rate hikes would quickly push the US economy into recession. Admittedly, high inflation has …
1st April 2022
Less than a week after the Fed raised interest rates by 25bp at its policy meeting and issued projections showing that it intended to hike rates at each of the remaining six meetings this year, Chair Jerome Powell adopted an even more hawkish tone in a …
25th March 2022
The Fed delivered on expectations of a 25bp rate hike this week but went further than we anticipated in pencilling in a further six 25bp hikes this year and four next. With their forecasts for core inflation in future years close to our own, we have …
18th March 2022
Fed to hike by 25bp and “proceed cautiously” We expect the Fed to hike interest rates by 25bp at next week’s FOMC meeting and, despite the war in Ukraine, to unveil new projections showing at least five interest rate hikes this year in total. We also …
11th March 2022
Energy prices soaring Based on shifts in wholesale prices, the surge in the WTI crude oil price to more than $110 per barrel this week will drive the national retail gasoline price up to almost $4.50 a gallon within the next couple of weeks. (See Chart …
4th 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
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 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
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
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 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
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 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
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
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
Powell signals turning point in inflation fight Fed Chair Jerome Powell’s congressional testimony this week was markedly more hawkish. We wouldn’t characterise it as a full-blown Volcker moment. But there could be parallels with former Chair Alan …
3rd December 2021
Powell keeps his job; Brainard gets a promotion The announcement on Monday morning that President Biden would nominate Jerome Powell for a second term as Fed Chair was largely as expected, although the unexplained delays in making it official may have …
24th November 2021
Sales and activity both strengthening The 1.7% m/m increase in retail sales values together with the 1.6% m/m gain in industrial production point to a resurgence in momentum in October, following the slowdown in third-quarter GDP growth to only 2.0% …
19th November 2021
It’s finally infrastructure week Infrastructure week has finally arrived, with President Biden due to sign the bill into law on Monday. The infrastructure bill is often touted as a $1.2bn package, but much of that is re-purposed funds. Only $550bn is …
12th November 2021
While the Fed announced tapering as expected at its meeting this week, the big surprise was how dovish the language in the statement and press conference remained, which suggests to us an increasing risk that the Fed is falling behind the curve. Chair …
5th November 2021
The weakness of third-quarter GDP growth illustrates that, while demand remains strong, the economy has hit a wall of supply constraints. Ongoing product and labour shortages mean that growth will continue to disappoint next year, even if the Democrats …
29th October 2021
Employees are flexing their new-found bargaining power, with the unprecedented rate of job turnover, labelled “The “Great Resignation”, triggering a surge in wage growth for job switchers. Wage growth for job stayers is, for now, more muted. But, as the …
22nd October 2021
This week brought more news that acute labour shortages and the resulting surge in wages are rapidly feeding through into the most cyclically sensitive components of the consumer price index. For the past couple of months, that impact has been masked by a …
15th October 2021
Even the more modest 194,000 gain in non-farm payrolls in September is “decent” enough for the Fed to announce at next month’s meeting that it will begin tapering its asset purchases, especially now the threat of a government debt default has been pushed …
8th October 2021
Prime Minister Harold Wilson’s quip that “a week is a long time in politics”, which he made during one of the UK’s seemingly never-ending crises in the 1960s, aptly describes the Democratic Party’s implosion. Slow motion train wreck This was the week when …
1st October 2021
This week the focus was on the Fed, which appears intent on announcing a QE taper at the next FOMC meeting in early November. Next week the focus will shift to fiscal policy, with the Democrat’s plans to boost infrastructure and social welfare spending …
24th September 2021
While the data released this week showed retail spending picking up in August as price gains moderated, the figures are still consistent with a sharp slowdown in consumption growth in the third quarter while underlying inflationary pressures continue to …
17th September 2021
Tapering is off the table this month and whether the Fed will make an announcement before year-end depends on the strength of employment, which is being held back by increasingly acute labour shortages and the spread of the Delta variant. Fed hawks back …
10th September 2021
With employment increasing by less than 250,000 last month and other incoming data disappointing, the recovery appears to be losing momentum even faster than our already-below consensus forecasts imply. The slowdown initially reflected the fading of the …
3rd September 2021
Delta wave spreads The Delta-variant linked surge in coronavirus cases continues and has now spread well beyond just one or two southern states. (See Chart 1.) Moreover, even in those southern states, particularly Florida, new case numbers remain close to …
27th August 2021
The Fed now looks likely to begin tapering its asset purchases later this year, but the precise timing could depend on the extent of any economic drag from the continued rapid spread of the Delta coronavirus variant. The minutes from the July FOMC meeting …
20th August 2021
While the July inflation data this week added to signs that we’re past the peak of “transitory” gains in prices for used autos and reopening services, the pick-up in some of the more cyclically driven components showed underlying inflationary pressures …
13th August 2021
While many Republicans will balk at the cost of the bipartisan infrastructure package, which the CBO said would add $256bn (1.1% of GDP) to the deficit over the next decade, that is unlikely to derail the entire package, which faces a crucial Senate vote …
6th August 2021
The slightly disappointing second-quarter GDP data released this week and another dovish press conference from Chair Jerome Powell strengthen our belief that the Fed is unlikely to begin tapering its asset purchases until early next year. The 6.5% …
30th July 2021
Fiscal policy still plagued by uncertainty Although the $600bn bipartisan infrastructure deal fell at the first hurdle in the Senate this week, centrist Republican Senators indicated that they would be willing to provide the support to overcome the threat …
23rd July 2021
The Democrats’ $3.5trn budget proposal is only the first step in what could be a protracted negotiation to a final bill, which will be roughly fiscally neutral. Meanwhile, another dovish showing from Fed Chair Jerome Powell this week hasn’t prevented …
16th July 2021
The drop back in Treasury yields has accelerated over the past few weeks, as persistent supply shortages and the spread of new coronavirus variants have raised doubts about the pace of real economic growth in the second half of this year and beyond. We …
9th July 2021
We aren’t convinced that it will mark the start of a sustained acceleration, but the stronger gain in June payrolls will embolden those Fed officials calling for an earlier end to the Fed’s asset purchases. The 850,000 rise in non-farm payrolls in June …
2nd July 2021
Fed officials all over the map Fed Chair Jerome Powell stuck to the script in his congressional appearance earlier this week, arguing it was “very, very, unlikely” that the US would experience a return to the high inflation of the 1970s. He acknowledged …
25th June 2021
The upward revisions to the “dot plot” at this week’s FOMC meeting were hard to square with Fed officials’ continued belief that higher inflation will prove mostly transitory. Nevertheless, we also now expect two 25bp rate hikes in 2023, one more than we …
18th June 2021
The continued surge in prices last month was again mostly concentrated in sectors reopening or facing intense supply constraints, which allows the Fed to stick with its “largely transitory” story for now. But with signs of cyclical price pressures …
11th June 2021
Democrats get bad news on spending plans The Senate Parliamentarian delivered some bad news to the Democrats this week – ruling that they could introduce another reconciliation to the current budget, which would allow them to pass more of President Joe …
4th June 2021
Infrastructure negotiations going nowhere Negotiations over a bipartisan compromise on infrastructure spending continued this week, but the Republicans and Democrats are still so far apart in their offers that it is only a matter of time before these …
28th May 2021
In a relatively quiet week, the few data releases we did get added to signs that shortages are pushing up prices further and restraining the pace of economic recovery. The mid-month Manheim used vehicle auction price data showed used auto prices rose by a …
21st May 2021