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SGH Macro Advisors produces concise, forward-looking proprietary reports on the major central banks and on key economic and policy developments that drive global bond, equity, and currency markets.
Founded in 2009, SGH has over the years built a reputation as a thought leader and source of well-informed, cutting-edge information, analysis, and insight on policy and financial markets. Its briefings and reports are highly valued by many of the world’s most well-known and influential hedge funds, money managers, and policymakers.
Highlights
SGH reports are highly valued for keeping clients and policymakers informed and well-ahead of market consensus.
September 25, 2024
SGH Insight
The Bank of Japan (BOJ) has pushed out the timing of its next interest rate hike beyond October on increased fears about downside risks to the US economy and to avoid domestic political issues related to the upcoming change in Japan’s ruling party leadership.
The decision reflects an important shift in strategic thinking by the BOJ and favors a later move by the BOJ, either at the December 18-19 meeting or into next year if the BOJ’s fears about the US are realized.
Market Validation
The decision reflects an important shift in strategic thinking by the BOJ and favors a later move by the BOJ, either at the December 18-19 meeting or into next year if the BOJ’s fears about the US are realized.
Reuters 10/1/24
Bank of Japan policymakers discussed the need to go slow in raising interest rates as jittery markets clouded the outlook, a summary of their September meeting showed, reducing the chance of a near-term rate hike.
The summary also showed how the U.S. Federal Reserve's decision to deliver an oversized reduction in borrowing costs, which came a day before the BOJ's Sept. 19-20 meeting, led to increased worries about the U.S. economic outlook.
"Uncertainties have heightened about the U.S. economy and the pace of rate cuts by the Fed. Attention needs to be paid to the possibility that these factors will have a negative impact on the yen's exchange rates and corporate profits in Japan," one member was quoted as saying.
Bank of Japan policymakers discussed the need to go slow in raising interest rates as jittery markets clouded the outlook, a summary of their September meeting showed, reducing the chance of a near-term rate hike.
The summary also showed how the U.S. Federal Reserve's decision to deliver an oversized reduction in borrowing costs, which came a day before the BOJ's Sept. 19-20 meeting, led to increased worries about the U.S. economic outlook.
"Uncertainties have heightened about the U.S. economy and the pace of rate cuts by the Fed. Attention needs to be paid to the possibility that these factors will have a negative impact on the yen's exchange rates and corporate profits in Japan," one member was quoted as saying.
September 24, 2024
SGH Insight
Consumption: Notably absent in the PBoC package was coordination with the fiscal side with a plan to directly stimulate sagging consumption. But we suspect and have written that this will likely be forthcoming.
Market Validation
Reuters 9/26/24
China plans to issue special sovereign bonds worth about 2 trillion yuan ($284.43 billion) this year as part of a fresh fiscal stimulus, said two sources with knowledge of the matter, adding to a string of measures to battle strong deflationary pressures and faltering economic growth.
As part of the package, the Ministry of Finance (MOF) plans to issue 1 trillion yuan of special sovereign debt primarily to stimulate consumption amid growing concerns about a stuttering post-COVID economic recovery, said the sources.
China plans to issue special sovereign bonds worth about 2 trillion yuan ($284.43 billion) this year as part of a fresh fiscal stimulus, said two sources with knowledge of the matter, adding to a string of measures to battle strong deflationary pressures and faltering economic growth.
As part of the package, the Ministry of Finance (MOF) plans to issue 1 trillion yuan of special sovereign debt primarily to stimulate consumption amid growing concerns about a stuttering post-COVID economic recovery, said the sources.
August 19, 2024
SGH Insight
Political messaging aside, Premier Li said that service consumption should be improved in terms of both “scale and quality,” and differentiated support policies should be developed to suit the needs of different groups to fully unleash consumption potential.
To that effect, our understanding is that Li has ordered the NDRC (National Development and Reform Commission) and the Ministry of Finance to study the feasibility of issuing 1 trillion yuan to stimulate consumption.
More specifically, if the economy does not perform as expected in the third quarter, especially in August and September, the central government may issue 1 trillion yuan mainly for low- and middle-income earners to stimulate domestic demand.
Market Validation
To that effect, our understanding is that Li has ordered the NDRC (National Development and Reform Commission) and the Ministry of Finance to study the feasibility of issuing 1 trillion yuan to stimulate consumption.
More specifically, if the economy does not perform as expected in the third quarter, especially in August and September, the central government may issue 1 trillion yuan mainly for low- and middle-income earners to stimulate domestic demand.
Bloomberg 9/26/24
China plans to issue special sovereign bonds worth about 2
trillion yuan this year, Reuters reports, citing two people
familiar with the matter.
* The Ministry of Finance plans to issue 1 trillion yuan of
special sovereign debt issued primarily to stimulate consumption
** Proceeds to help increase subsidies for the trade-in and
renewal of consumer goods and to upgrade large-scale business
equipment
** Will also give a monthly allowance of about 800 yuan ($114)
per child to all households with two or more children, excluding
the first child, one person said
* The other 1 trillion yuan, via a separate special sovereign
debt issuance, to be used to help local governments tackle debt
* Some of the measures could be unveiled as soon as this week
China plans to issue special sovereign bonds worth about 2
trillion yuan this year, Reuters reports, citing two people
familiar with the matter.
* The Ministry of Finance plans to issue 1 trillion yuan of
special sovereign debt issued primarily to stimulate consumption
** Proceeds to help increase subsidies for the trade-in and
renewal of consumer goods and to upgrade large-scale business
equipment
** Will also give a monthly allowance of about 800 yuan ($114)
per child to all households with two or more children, excluding
the first child, one person said
* The other 1 trillion yuan, via a separate special sovereign
debt issuance, to be used to help local governments tackle debt
* Some of the measures could be unveiled as soon as this week
September 23, 2024
SGH Insight
With the Reserve Bank of Australia (RBA) all but certain to stand pat at this week’s policy meeting following last week’s news of sharply stronger-than-expected jobs growth, we guide clients to looks for clues as to whether the Bank opts to leave any rhetorical room to cut rates before the end of the year.
We maintain our view that the RBA’s current policy stance and recent commentary do retain room for the Bank to shift to an easing bias and reduce rates before year’s end, even if RBA Governor Michele Bullock maintains a hawkish posture at this week’s post meeting press conference.
Market Validation
We maintain our view that the RBA’s current policy stance and recent commentary do retain room for the Bank to shift to an easing bias and reduce rates before year’s end, even if RBA Governor Michele Bullock maintains a hawkish posture at this week’s post meeting press conference.
Bloomberg 9/24/24
Australia’s central bank signaled it will
keep its key interest rate at a 12-year high in the near term as
it struggles with stubborn inflation that’s holding it back from
joining a global easing cycle.
“Based on what we know at the moment rates will remain on
hold for the time being,” Governor Michele Bullock told a press
conference in Sydney on Tuesday after keeping the cash rate at
4.35% for a seventh straight meeting. Still, the RBA isn’t
“ruling anything in or out” on policy, she said.
Unlike in August when policymakers put a rate rise on the
table, this time around a hike wasn’t “explicitly considered,”
Bullock told reporters, sending the currency and bond yields
lower.
Australia’s central bank signaled it will
keep its key interest rate at a 12-year high in the near term as
it struggles with stubborn inflation that’s holding it back from
joining a global easing cycle.
“Based on what we know at the moment rates will remain on
hold for the time being,” Governor Michele Bullock told a press
conference in Sydney on Tuesday after keeping the cash rate at
4.35% for a seventh straight meeting. Still, the RBA isn’t
“ruling anything in or out” on policy, she said.
Unlike in August when policymakers put a rate rise on the
table, this time around a hike wasn’t “explicitly considered,”
Bullock told reporters, sending the currency and bond yields
lower.
September 20, 2024
SGH Insight
China’s political leadership is aware that the urgency has significantly increased for a cut in the Reserve Requirement Ratio (RRR) for banks, in the very near future, which coordinated with strengthened fiscal support would alleviate pressure on China’s commercial banks and mitigate the impact of a large volume of maturing medium-term lending facilities on market liquidity.
The PBoC is also likely to cut rates further in the very near future, which could mean the closing days of September, and introduce additional policy measures to reduce financing costs for enterprises and households, all within the mantra of maintaining “reasonable and sufficient liquidity,” but now also in accordance with the dictate of “sooner rather than later.”
We would push back against any narrative that the Fed rate cut made an ensuing PBoC move politically awkward, as the Fed’s shift in policy stance in fact creates more favorable conditions for China to cut interest rates.
The PBoC will soon opt for more easing as the US is poised for an interest rate cut cycle, and as headwinds are emerging amid efforts to stabilize domestic economic momentum.
The remaining days of this month may still be the window in which China cuts the RRR, and lending rate, as it continues to seek to mitigate the financial burden on the public of outstanding mortgages.
Market Validation
The PBoC is also likely to cut rates further in the very near future, which could mean the closing days of September, and introduce additional policy measures to reduce financing costs for enterprises and households, all within the mantra of maintaining “reasonable and sufficient liquidity,” but now also in accordance with the dictate of “sooner rather than later.”
We would push back against any narrative that the Fed rate cut made an ensuing PBoC move politically awkward, as the Fed’s shift in policy stance in fact creates more favorable conditions for China to cut interest rates.
The PBoC will soon opt for more easing as the US is poised for an interest rate cut cycle, and as headwinds are emerging amid efforts to stabilize domestic economic momentum.
The remaining days of this month may still be the window in which China cuts the RRR, and lending rate, as it continues to seek to mitigate the financial burden on the public of outstanding mortgages.
Bloomberg 9/24/24
China’s central bank unveiled a broad
package of monetary stimulus measures to revive the world’s
second-largest economy, underscoring mounting alarm within Xi
Jinping’s government over slowing growth and depressed investor
confidence.
People’s Bank of China governor Pan Gongsheng cut a key
short-term interest rate and announced plans to reduce the
amount of money banks must hold in reserve to the lowest level
since at least 2018, appearing at a rare briefing alongside two
of the country’s other top financial regulators in Beijing. That
marked the first time reductions to both measures were revealed
on the same day since at least 2015.
China’s central bank unveiled a broad
package of monetary stimulus measures to revive the world’s
second-largest economy, underscoring mounting alarm within Xi
Jinping’s government over slowing growth and depressed investor
confidence.
People’s Bank of China governor Pan Gongsheng cut a key
short-term interest rate and announced plans to reduce the
amount of money banks must hold in reserve to the lowest level
since at least 2018, appearing at a rare briefing alongside two
of the country’s other top financial regulators in Beijing. That
marked the first time reductions to both measures were revealed
on the same day since at least 2015.
September 17, 2024
SGH Insight
The Bank of Japan (BOJ) will likely sit tight on rates at its September 19-20 policy meeting as the country gears up for a change in political leadership and the US Federal Reserve kicks off its easing cycle.
The BOJ, having pulled nominal rates out of negative territory in March for the first time in 17 years, is in a good place. It lifted the policy rate to 25 bps in July, with officials pledging follow-up moves as long as the economy continues to track to its projections. It will get a fresh inflation reading on day two of its policy meeting.
Shifting expectations for US rates which coincided with the huge unwind of yen-related carry trades produced just the kind of level-shift higher in the yen that authorities had been seeking for months – even if a bit volatile.
Its July hike also reduced the urgency for additional immediate action and has allowed the BOJ a little breathing room to monitor whether rising wages – which now importantly includes the first rise in real wages in 28 months – are helping to cement the long sought-after virtuous cycle between wages and prices.
Market Validation
The BOJ, having pulled nominal rates out of negative territory in March for the first time in 17 years, is in a good place. It lifted the policy rate to 25 bps in July, with officials pledging follow-up moves as long as the economy continues to track to its projections. It will get a fresh inflation reading on day two of its policy meeting.
Shifting expectations for US rates which coincided with the huge unwind of yen-related carry trades produced just the kind of level-shift higher in the yen that authorities had been seeking for months – even if a bit volatile.
Its July hike also reduced the urgency for additional immediate action and has allowed the BOJ a little breathing room to monitor whether rising wages – which now importantly includes the first rise in real wages in 28 months – are helping to cement the long sought-after virtuous cycle between wages and prices.
BBG 9/19/24
The Bank of Japan kept policy unchanged Friday as it avoided a repetition of the market meltdown that followed its July rate hike, while still keeping the ground prepared for a ramping up of borrowing costs in the coming months.
The immediate market reaction was muted this time, with stocks maintaining their gains and only a relatively small strengthening of the yen after the BOJ met expectations by holding the unsecured overnight call rate at around 0.25%.
In a busy week for central banking that saw the Federal Reserve finally embark on rate cuts, the BOJ was expected to stand pat by all economists surveyed by Bloomberg.
A hold decision seemed almost certain given the need to monitor the impact of July’s rate increase and to avoid spooking markets again with a surprise. Standing pat also kept the bank out of the spotlight as Japan’s Liberal Democratic Party chooses a new leader to take on the role of prime minister.
The bank raised its assessment of consumer spending, a key engine of economic growth, and cited the need to monitor financial markets. Following another uptick in the inflation rate, it also reiterated that it expects price growth to continue in line with its goal in the latter half of its projection period.
“The BOJ is indicating it’s on track for another rate hike,” said Jin Kenzaki, head of Japan research at Societe Generale SA.
The Bank of Japan kept policy unchanged Friday as it avoided a repetition of the market meltdown that followed its July rate hike, while still keeping the ground prepared for a ramping up of borrowing costs in the coming months.
The immediate market reaction was muted this time, with stocks maintaining their gains and only a relatively small strengthening of the yen after the BOJ met expectations by holding the unsecured overnight call rate at around 0.25%.
In a busy week for central banking that saw the Federal Reserve finally embark on rate cuts, the BOJ was expected to stand pat by all economists surveyed by Bloomberg.
A hold decision seemed almost certain given the need to monitor the impact of July’s rate increase and to avoid spooking markets again with a surprise. Standing pat also kept the bank out of the spotlight as Japan’s Liberal Democratic Party chooses a new leader to take on the role of prime minister.
The bank raised its assessment of consumer spending, a key engine of economic growth, and cited the need to monitor financial markets. Following another uptick in the inflation rate, it also reiterated that it expects price growth to continue in line with its goal in the latter half of its projection period.
“The BOJ is indicating it’s on track for another rate hike,” said Jin Kenzaki, head of Japan research at Societe Generale SA.
September 12, 2024
SGH Insight
Stalled UK growth and slowing wages are setting the stage for Bank of England Governor Andrew Bailey to push for more easing this year. If upcoming inflation data improve, he could hint at a series of rate cuts extending through next year.
While our base case remains that the majority on the monetary policy committee (MPC) will coalesce around November for another 25 basis point cut in Bank Rate to 4.75%
Skipping a September cut gives the BOE a clear path to announce and explain a decision to further reduce its gilt sales over the next 12 months by as much as 100 billion sterling ($130 billion).
The MPC next week will vote on a target for a reduction in the stock of UK government bonds for the period beginning in October and running through September next year.
Market Validation
While our base case remains that the majority on the monetary policy committee (MPC) will coalesce around November for another 25 basis point cut in Bank Rate to 4.75%
Skipping a September cut gives the BOE a clear path to announce and explain a decision to further reduce its gilt sales over the next 12 months by as much as 100 billion sterling ($130 billion).
The MPC next week will vote on a target for a reduction in the stock of UK government bonds for the period beginning in October and running through September next year.
BBG 9/19/24
The Monetary Policy Committee voted 8-1 to keep rates
steady at 5%, an outcome whose caution contrasts with the half-
point reduction delivered in the US on the eve of the UK
announcement on Thursday. That was in line with the expectations
of economists and markets.
“We should be able to reduce rates gradually over time,”
Governor Andrew Bailey said in a statement, stressing that such
a path would depend on price pressures continuing to ease. “It’s
vital that inflation stays low, so we need to be careful not to
cut too fast or by too much.”
The panel also maintained the £100 billion ($132 billion) a
year pace of its balance sheet run-off, in a unanimous decision
on quantitative tightening.
The Monetary Policy Committee voted 8-1 to keep rates
steady at 5%, an outcome whose caution contrasts with the half-
point reduction delivered in the US on the eve of the UK
announcement on Thursday. That was in line with the expectations
of economists and markets.
“We should be able to reduce rates gradually over time,”
Governor Andrew Bailey said in a statement, stressing that such
a path would depend on price pressures continuing to ease. “It’s
vital that inflation stays low, so we need to be careful not to
cut too fast or by too much.”
The panel also maintained the £100 billion ($132 billion) a
year pace of its balance sheet run-off, in a unanimous decision
on quantitative tightening.
September 15, 2024
SGH Insight
This week’s FOMC meeting
We expect that the Fed will cut rates 50bp this week. The Fed could have let sleeping dogs lie last Thursday and left market pricing decaying toward a 25bp cut, but it allowed for a repositioning of expectations toward 50bp. There hasn’t been an effort to push back on that pricing. Note that it may be a struggle to move market pricing to 80% or higher odds of 50bp. The Fed would need more direct communications now given Waller’s hard signals before blackout. We know many clients and analysts will have a hard time letting that go, which we understand. If pricing holds near 60-40 in favor of 50bp, the Fed has an opportunity for a dovish surprise, which would be a helpful push in counteracting a weakening labor market.
The FOMC statement will be reset to match policy. The Fed has let the FOMC statement languish in its role as a policy guide.
If the Fed cuts rates to protect the employment mandate, and expects further rate cuts, it can’t say the risks are in balance anymore. It was already silly to retain this language in July when participants effectively decided on a September rate cut. The subsequent paragraph will change to reflect the rate cut and the expectation of additional cuts at subsequent meetings. We expect there will be a reference to preventing further “unwelcome” softening in the labor markets.
We anticipate limited if any dissents. If the Fed can arrive at the conclusion that the labor market is deteriorating or at the verge of deterioration, there will be universal agreement that the Fed is embarking on a series of rate cuts, and at that point participants really shouldn’t have high conviction that pulling one of those cuts forward is a major policy error. Generally, a participant needs to have real conviction to dissent.
We believe the SEP will reveal a total of 100bp of rate cuts for 2024.
We also believe that Powell is the driving force behind a last-minute shift to a 50bp cut. Prior to the employment report, we believed that Powell made a strong argument for a 50bp cut on the totality of the data at the time of Jackson Hole. We didn’t see his assertion that the Fed will do everything it can to support a strong labor market as consistent with leading with 25bp given the currently very restrictive policy stance. Perhaps this was not his intention at the time, but we argued that data from the Conference Board, regional Fed surveys, the Beige Book, and JOLTs all indicated that the labor market had deteriorated since Jackson Hole and had already suffered the “unwelcome further weakening” that Powell sought to avoid. We didn’t believe the employment report should have such a prominent role in the decision to cut 50bp as it was only one part of the totality of data that Powell claims is important. And we said that only a very strong report could derail a 50bp cut. The report was not strong, but again Waller seemed to think it was strong enough, thus apparently undermining our position.
Market Validation
We expect that the Fed will cut rates 50bp this week. The Fed could have let sleeping dogs lie last Thursday and left market pricing decaying toward a 25bp cut, but it allowed for a repositioning of expectations toward 50bp. There hasn’t been an effort to push back on that pricing. Note that it may be a struggle to move market pricing to 80% or higher odds of 50bp. The Fed would need more direct communications now given Waller’s hard signals before blackout. We know many clients and analysts will have a hard time letting that go, which we understand. If pricing holds near 60-40 in favor of 50bp, the Fed has an opportunity for a dovish surprise, which would be a helpful push in counteracting a weakening labor market.
The FOMC statement will be reset to match policy. The Fed has let the FOMC statement languish in its role as a policy guide.
If the Fed cuts rates to protect the employment mandate, and expects further rate cuts, it can’t say the risks are in balance anymore. It was already silly to retain this language in July when participants effectively decided on a September rate cut. The subsequent paragraph will change to reflect the rate cut and the expectation of additional cuts at subsequent meetings. We expect there will be a reference to preventing further “unwelcome” softening in the labor markets.
We anticipate limited if any dissents. If the Fed can arrive at the conclusion that the labor market is deteriorating or at the verge of deterioration, there will be universal agreement that the Fed is embarking on a series of rate cuts, and at that point participants really shouldn’t have high conviction that pulling one of those cuts forward is a major policy error. Generally, a participant needs to have real conviction to dissent.
We believe the SEP will reveal a total of 100bp of rate cuts for 2024.
We also believe that Powell is the driving force behind a last-minute shift to a 50bp cut. Prior to the employment report, we believed that Powell made a strong argument for a 50bp cut on the totality of the data at the time of Jackson Hole. We didn’t see his assertion that the Fed will do everything it can to support a strong labor market as consistent with leading with 25bp given the currently very restrictive policy stance. Perhaps this was not his intention at the time, but we argued that data from the Conference Board, regional Fed surveys, the Beige Book, and JOLTs all indicated that the labor market had deteriorated since Jackson Hole and had already suffered the “unwelcome further weakening” that Powell sought to avoid. We didn’t believe the employment report should have such a prominent role in the decision to cut 50bp as it was only one part of the totality of data that Powell claims is important. And we said that only a very strong report could derail a 50bp cut. The report was not strong, but again Waller seemed to think it was strong enough, thus apparently undermining our position.
Washington Post 9/18/24
The Federal Reserve cut interest rates Wednesday by a half-point, turning the page on an era of dangerously high inflation and marking a major shift at the central bank that could bring relief for households and businesses alike.
The rate cut, announced at the end of the Fed's two-day policy meeting, marks the first time officials trimmed borrowing costs since the pandemic's early days. And while officials were practically guaranteed to cut rates this week, it was unclear how aggressively they were going to move.
FOMC Statement
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.
In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 percent. In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.
Bloomberg 9/18/24
Michelle Bowman cast the first dissenting vote by a Federal Reserve governor since 2005, preferring to cut rates by a smaller amount at Wednesday’s policy meeting.
BBG 9/18/24
*FED SEES RATES AT 4.4% AT END OF 2024, 3.4% IN 2025
*TEN OFFICIALS PENCILED IN 100 BPS OR MORE OF CUTS FOR 2024
9/18/24 Powell: A lot of questions there. Let me jump in. So since the last meeting, okay, the last meeting we have had a lot of data come in. We had the two employment reports, July and August. We also had two inflation reports including one that came in during blackout. We had the QCEW report that surges that maybe -- not maybe but suggests the payroll report numbers that we're getting maybe artificially high and will be revised down. You know that. We have also seen anecdotal data like the beige book. We took all of those and we went into blackout and we thought about what to do and we concluded this was a right thing for the economy for the people that we serve and that's how we made our decision.
The Federal Reserve cut interest rates Wednesday by a half-point, turning the page on an era of dangerously high inflation and marking a major shift at the central bank that could bring relief for households and businesses alike.
The rate cut, announced at the end of the Fed's two-day policy meeting, marks the first time officials trimmed borrowing costs since the pandemic's early days. And while officials were practically guaranteed to cut rates this week, it was unclear how aggressively they were going to move.
FOMC Statement
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.
In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 percent. In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.
Bloomberg 9/18/24
Michelle Bowman cast the first dissenting vote by a Federal Reserve governor since 2005, preferring to cut rates by a smaller amount at Wednesday’s policy meeting.
BBG 9/18/24
*FED SEES RATES AT 4.4% AT END OF 2024, 3.4% IN 2025
*TEN OFFICIALS PENCILED IN 100 BPS OR MORE OF CUTS FOR 2024
9/18/24 Powell: A lot of questions there. Let me jump in. So since the last meeting, okay, the last meeting we have had a lot of data come in. We had the two employment reports, July and August. We also had two inflation reports including one that came in during blackout. We had the QCEW report that surges that maybe -- not maybe but suggests the payroll report numbers that we're getting maybe artificially high and will be revised down. You know that. We have also seen anecdotal data like the beige book. We took all of those and we went into blackout and we thought about what to do and we concluded this was a right thing for the economy for the people that we serve and that's how we made our decision.
September 12, 2024
SGH Insight
We Need To Be Nimble
While we couldn’t ignore the pre-blackout messaging, we were hesitant to underweight the odds of a 50bp cut next week. Despite complacency about the labor market from Fed officials, the data supported a 50bp cut, and we remain convinced that Chair Powell’s Jackson Hole speech signaled that he wanted a 50bp cut. Indeed, Powell drew a line in the sand by declaring the Fed did not “seek or welcome” further labor market deterioration, but the data since Jackson Hole tells us the labor market has already crossed that line.
The messaging from New York Fed President John Williams and Governor Chris Waller, however, clearly signaled an intention to slow walk rates cuts. The gap between Powell and other FOMC participants was inexplicable in our view, but Waller in particular has never hard guided the markets in the wrong direction ahead of an FOMC meeting.
We perhaps should have taken that sense of hesitancy a little more to heart, because the Fed will most likely lead the cutting cycle with a 50bp cut at next week’s FOMC meeting.
Market Validation
While we couldn’t ignore the pre-blackout messaging, we were hesitant to underweight the odds of a 50bp cut next week. Despite complacency about the labor market from Fed officials, the data supported a 50bp cut, and we remain convinced that Chair Powell’s Jackson Hole speech signaled that he wanted a 50bp cut. Indeed, Powell drew a line in the sand by declaring the Fed did not “seek or welcome” further labor market deterioration, but the data since Jackson Hole tells us the labor market has already crossed that line.
The messaging from New York Fed President John Williams and Governor Chris Waller, however, clearly signaled an intention to slow walk rates cuts. The gap between Powell and other FOMC participants was inexplicable in our view, but Waller in particular has never hard guided the markets in the wrong direction ahead of an FOMC meeting.
We perhaps should have taken that sense of hesitancy a little more to heart, because the Fed will most likely lead the cutting cycle with a 50bp cut at next week’s FOMC meeting.
Federal Reserve delivers super-sized half-point rate cut
Axios 9/18/24
The Federal Reserve cut its target interest rate Wednesday by an extra-large half percentage point, and projected more rate cuts this year and next, as its period of trying to put brakes on the economy to fight inflation comes to a close.
The rate cut reflects the U.S. entering a new phase where the softening job market is the predominant economic risk rather than elevated inflation.
By going with an aggressive half-point cut instead of its more traditional quarter-point adjustment, the Fed moved to get ahead of some evident faltering in the job market.
Axios 9/18/24
The Federal Reserve cut its target interest rate Wednesday by an extra-large half percentage point, and projected more rate cuts this year and next, as its period of trying to put brakes on the economy to fight inflation comes to a close.
The rate cut reflects the U.S. entering a new phase where the softening job market is the predominant economic risk rather than elevated inflation.
By going with an aggressive half-point cut instead of its more traditional quarter-point adjustment, the Fed moved to get ahead of some evident faltering in the job market.
September 4, 2024
SGH Insight
Bottom Line: We get more jobs data tomorrow, but so far this week, the data flow indicates the labor market has already and will continue to experience the further weakening that we have been expecting and that Powell said was “unwelcome.” The totality of the data suggests that this will be the case even if the August employment report firms relative to July. Future reports are likely to be weaker. In theory, that should reduce the importance of this week’s employment report. The totality of the data suggests that we should look through strength, but Fed presidents have placed a heavy weight on the outcome of this next read on the labor market. We think that Powell is leading his colleagues toward a 50bp rate cut in September as insurance against adverse outcomes and that his position is resilient to the outcomes of the labor report, but it is not yet clear the consensus will join.
Market Validation
Wall Street Journal 9/18/24
The Federal Reserve voted to lower interest rates by a half percentage point, opting for a bolder start in making its first reduction since 2020. The long-anticipated pivot followed an all-out fight against inflation the central bank launched two years ago.
Eleven of 12 Fed voters backed the cut, which will bring the benchmark federal-funds rate to a range between 4.75% and 5%. Quarterly projections released Wednesday showed a narrow majority of officials penciled in cuts that would lower rates by at least a quarter point each at meetings in November and December.
The Federal Reserve voted to lower interest rates by a half percentage point, opting for a bolder start in making its first reduction since 2020. The long-anticipated pivot followed an all-out fight against inflation the central bank launched two years ago.
Eleven of 12 Fed voters backed the cut, which will bring the benchmark federal-funds rate to a range between 4.75% and 5%. Quarterly projections released Wednesday showed a narrow majority of officials penciled in cuts that would lower rates by at least a quarter point each at meetings in November and December.
September 12, 2024
SGH Insight
We would describe these dynamics as keeping an open mind to the October meeting, but far from a base case, and more as insurance against unlikely and exogenous risks that could materialize over the coming month, or a failure of growth to pick up as expected.
Market Validation
Lagarde Signals ECB Open to October Cut But December More Likely (9/13/24)
The European Central Bank is open to
considering an interest-rate cut in October if the economy
suffers a major setback — though the next comprehensive set of
information will only be available at the following meeting,
President Christine Lagarde said.
Her remarks, less than a day after the ECB delivered its
second quarter-point reduction in the deposit rate since June,
offer the clearest signal yet that policymakers are leaning
toward waiting until December for their next move.
But they’ve vowed to be data dependent and decline to rule
out acting already next months. People familiar with their
thinking have said it would take a more significant
deterioration in the growth outlook or aggressive easing by the
Federal Reserve to depart from the quarterly pace of rate-
cutting.
The European Central Bank is open to
considering an interest-rate cut in October if the economy
suffers a major setback — though the next comprehensive set of
information will only be available at the following meeting,
President Christine Lagarde said.
Her remarks, less than a day after the ECB delivered its
second quarter-point reduction in the deposit rate since June,
offer the clearest signal yet that policymakers are leaning
toward waiting until December for their next move.
But they’ve vowed to be data dependent and decline to rule
out acting already next months. People familiar with their
thinking have said it would take a more significant
deterioration in the growth outlook or aggressive easing by the
Federal Reserve to depart from the quarterly pace of rate-
cutting.
News and Events
SGH Macro Advisors hosts occasional roundtables and events for clients and senior policymakers.