The FOMC meeting (recap here) lead to an everything rally as the Dow hit a new record high and the 2Y Treasury yield plunged 20bps and yields were lower across the curve, sending bond prices higher. The everything rally continues this morning with yields down 8-13bps, the 2Y right around 4.30% and the 10Y under 4% to 3.95%. Do you recall, not long ago, in late October when both the 2Y and 10Y were over 5%, hard to believe. There was also lots of speculation on hedge funds facing large margin calls yesterday leading to forced selling of Mag7 stocks as the FOMC meeting hit.
If you're in the soft landing camp, do you have a definition of that term? If you need one, I find Scott Sumner's description worth a read it's part of his full post here:
"Mark your calendars. Unemployment fell to 3.6% in March 2022. Now it’s 3.7%. If it’s still relatively low in March 2025, and if inflation has fallen close to the Fed’s 2% target, then the US will have achieved its first ever soft landing. Three years of cyclically low unemployment without triggering high inflation is something that has frequently occurred in other countries (say the UK in the early 2000s), but never in the US. No one knows why.America’s been around for a quarter of a millennium, which is a long time. The early years are not well documented, but I’m pretty sure that we’ve never had a soft landing since at least the Civil War. And yet it seems like Wall Street prognosticators are increasingly of the view that the US will soon achieve a soft landing, our first ever."
On the day ahead, don't worry you have more Central Bankers (the Swiss already left rates unchaned, the ECB and BoE are still to come) along with retail sales data.
In other news, House Republicans voted to authorize an impeachment inquiry into Biden.
In still other news, researchers at the BIS stumbled upon this novel idea "Hedging interest rate risk can reduce firms’ exposure to higher interest rates whenever they hold variable rate debt." I know it sounds crazy that hedging, which is designed to reduce risk to higher interest rates, will reduce risk to higher interest rates. I thought it seemed inherent or somewhat definitional in the term "hedging", but I feel much better now knowing that researchers have agreed.
XTOD: Ah cuts in January now nearing a coin flip. Makes complete sense
XTOD: It’s almost like Jay Powell thinks inflation was reduced by the Fed’s large and sudden increase in interest rates rather than by pandemic recovery, and now that inflation has been lowered by monetary policy he has to ease up slowly to get down to 2% target and not overshoot.
XTOD: Not to beat too much the same drum, but a one-time fiscal blowout leads to inflation that comes from nowhere (if you're Fed) and goes away on its own. Fed can jump in front of parade & help a bit. Until the next fiscal blowout. Model simulation of a fiscal shock:
XTOD: It makes sense to look at the post C-19 inflation as a "bribe" perpetrated by the Fed!
https://marcusnunes.substack.com/p/post-c-19-inflation-the-story-of
XTOD: This is exactly how you embed secularly higher inflation expectations and lose your credibility as an institution. The asymmetry is the message...Mistake is sort of a loaded term. If the era of secular low inflation is back it's very clearly the right move. But if it's not then it will prove to have been a mistake. IMV the balance of risks means being concerned about embedded inflation still dominates, for me.
XTOD: The remaining above-target inflation is mostly cyclically-driven (i.e. caused by excess aggregate demand pressures). This is why I suspect the “last mile” of returning to 2% inflation is going to be more challenging than the happy-go-lucky disinflation we’ve had so far. https://shorturl.at/aegsE...Chair Powell agrees: “While the broader supply recovery continues, it is not clear how much more will be achieved by additional supply-side improvements. Going forward, it may be that a greater share of the progress in reducing inflation will have to come from tight monetary policy restraining the growth of aggregate demand.”
XTOD: Forecasts of 3% 10 year in 2024 are farcical. If Fed funds rest at 3% then 10 year average term premium of 1.1 indicates at 4% that we are there.
XTOD: Test scores are plummeting worldwide. Why? Probably because of phones. We should ban phones from the classroom.
XTOD: Buster Posey: SF Giants Lost Shohei Ohtani to Drug, Crime Issues Buster Posey, now part of the Giants' ownership group, said players and their wives feel uncomfortable about the state of San Francisco.
https://x.com/dampedspring/status/1735122802535997654?s=20
https://x.com/ProfJAParker/status/1735061821285863923?s=20
https://x.com/JohnHCochrane/status/1735064356021543387?s=20
https://x.com/NGDP_Advice/status/1735069741784441253?s=20
https://x.com/SteveMiran/status/1735039829484671143?s=20
https://x.com/DavidBeckworth/status/1734931743944192487?s=20
https://x.com/real_bill_gross/status/1735063094437773752?s=20
https://x.com/Noahpinion/status/1734913562575810739?s=20
https://x.com/sfstandard/status/1735079676320608448?s=20
No comments:
Post a Comment