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SGH Macro Advisors provides macro-policy research to the world’s most influential hedge funds, money managers, and financial policymakers. We produce well-informed, cutting edge reports and briefings on the major central bank, fiscal and political events driving the global economies and financial markets.
Over the years we have built a reputation as a trusted, highly valued source of un-biased, un-conflicted information and insight to the policymaking and investment communities, one that is materially differentiated from street research, the press, and think tanks.
Highlights
SGH reports are highly valued for keeping clients and policymakers informed and well-ahead of consensus and the news cycle on the macro policy events driving global markets.
May 6, 2021
SGH Insight
Merkel, who has long been a solid ally of Beijing in Europe, will be stepping down in five months. With an acute post-COVID pandemic sense of vulnerability in the EU over its reliance on supply chains from China , there has been a significant change of mood in the EU towards China, and it is one that appears likely to stay.
Market Validation
February 18, 2021
SGH Insight
More flexibility in ETF purchases
The calls on and from what we understand even within the BOJ have been mounting to adjust the scale of its equity ETF purchases linked to the Nikkei and Topix indices as Japanese stock markets hit highs not seen for a generation.
We expect the policy review is likely to add some additional flexibility to the BOJ ETF program to enable the central bank to reduce its purchases when markets are high, or rising steeply, and to increase them when they are low, albeit without committing to any specific price levels or metrics.
Expansion of the 10-year JGB band guidance.
As we flagged just under a month ago, (see SGH 1/20/2021; “BOJ: Positioning for Steeper H2 Curve”), we believe the Bank of Japan is more than likely to expand the band within which it allows the 10-year JGB to trade by ten basis points on each side, from plus or minus 0.2% around 0.0%, to plus or minus 0.3%.
Market Validation
The calls on and from what we understand even within the BOJ have been mounting to adjust the scale of its equity ETF purchases linked to the Nikkei and Topix indices as Japanese stock markets hit highs not seen for a generation.
We expect the policy review is likely to add some additional flexibility to the BOJ ETF program to enable the central bank to reduce its purchases when markets are high, or rising steeply, and to increase them when they are low, albeit without committing to any specific price levels or metrics.
Expansion of the 10-year JGB band guidance.
As we flagged just under a month ago, (see SGH 1/20/2021; “BOJ: Positioning for Steeper H2 Curve”), we believe the Bank of Japan is more than likely to expand the band within which it allows the 10-year JGB to trade by ten basis points on each side, from plus or minus 0.2% around 0.0%, to plus or minus 0.3%.
(Bloomberg 3/19/21)
The Bank of Japan unveiled a set of carefully crafted policy tweaks aimed at giving itself more flexibility to keep up its long quest to revive inflation.
The bank set out a wider-than-previously-thought movement range for bond yields and scrapped a buying target for stock funds at the end of a three-month policy review.
While the currency and bond markets largely took the moves in stride, the BOJ’s decision to focus its purchasing of exchange-traded funds on the wider Topix index drove down shares on the Nikkei 225.
Many of the tweaks will give the BOJ greater scope to buy fewer assets and could be viewed as a stepping back from stimulus, but the central bank characterized the changes as shoring up the effectiveness and sustainability of its measures over the longer run.
The Bank of Japan unveiled a set of carefully crafted policy tweaks aimed at giving itself more flexibility to keep up its long quest to revive inflation.
The bank set out a wider-than-previously-thought movement range for bond yields and scrapped a buying target for stock funds at the end of a three-month policy review.
While the currency and bond markets largely took the moves in stride, the BOJ’s decision to focus its purchasing of exchange-traded funds on the wider Topix index drove down shares on the Nikkei 225.
Many of the tweaks will give the BOJ greater scope to buy fewer assets and could be viewed as a stepping back from stimulus, but the central bank characterized the changes as shoring up the effectiveness and sustainability of its measures over the longer run.
March 17, 2021
SGH Insight
Bottom Line: Overall, the message of this FOMC meeting was that the Fed fully intends to follow the new framework when setting policy and will not be pulled into a pre-emptive policy tightening. The forecasts even foreshadowed the expected near-term inflation acceleration, effectively formalizing the stated intention to look through transitory inflation outcomes. The Fed very much intends to let the economy run hot to make up lost ground as quickly as possible. We should not doubt the Fed’s intentions when the first high inflation numbers start coming in but the reality is that this meeting will not be the end of the cat and mouse game between market participants and the Fed. This environment of steady policy in the face of improving economic conditions should remain consistent with a general steeping of the yield curve.
Market Validation
(Bloomberg 3/18/21)
Treasury Yields Top 1.75% After Powell Spurs Bets on Inflation
ING sees ‘no real barrier’ for move higher in 10-year rate
U.S. 10-year yield climbs to highest level since January 2020
Treasury yields breached key levels as traders boosted bets the Federal Reserve will allow inflation to overshoot amid an economic rebound.
Yields on the benchmark 10-year note climbed as much as 11 basis points to 1.75% -- the highest since January 2020, while the 30-year jumped to 2.5% for the first time since August 2019. Market measures of inflation expectations are near multi-year highs, with traders paring back bets the Fed would start tightening as soon as late next year. The dollar rebounded against its major peers. Treasury yields pared some gains but remained elevated during New York morning trading.
The moves came after Fed Chair Jerome Powell indicated he wasn’t concerned over the recent surge in long-term yields -- with his focus still on whether financial conditions remained accommodative. Rates have surged this year on expectations that stimulus spending and vaccine rollouts will fuel a sharper economic recovery and a pickup in inflation.
Treasury Yields Top 1.75% After Powell Spurs Bets on Inflation
ING sees ‘no real barrier’ for move higher in 10-year rate
U.S. 10-year yield climbs to highest level since January 2020
Treasury yields breached key levels as traders boosted bets the Federal Reserve will allow inflation to overshoot amid an economic rebound.
Yields on the benchmark 10-year note climbed as much as 11 basis points to 1.75% -- the highest since January 2020, while the 30-year jumped to 2.5% for the first time since August 2019. Market measures of inflation expectations are near multi-year highs, with traders paring back bets the Fed would start tightening as soon as late next year. The dollar rebounded against its major peers. Treasury yields pared some gains but remained elevated during New York morning trading.
The moves came after Fed Chair Jerome Powell indicated he wasn’t concerned over the recent surge in long-term yields -- with his focus still on whether financial conditions remained accommodative. Rates have surged this year on expectations that stimulus spending and vaccine rollouts will fuel a sharper economic recovery and a pickup in inflation.
March 10, 2021
SGH Insight
Though a close run thing, we think the 2023 median rate plot will not show a rate hike. It would require five or more of the now 18 FOMC members to join the five who in December had already penciled in one or more hikes in 2023. On balance, we think it unlikely. The linchpin to that more benign rate dot plot outcome, even if markets latch on to any signs of earlier hike expectations by a growing FOMC minority, will be core PCE projections that steadily rise across the forecasting horizon but remain still shy of an inflation overshoot in the 2023 median.
Market Validation
(Market Watch 3/17/21)
Dow Up 160 Points As Stocks Turn Higher After Fed Policy Announcement
Stock-market investors reacted positively to the Federal Reserve's policy announcement, erasing losses or extending minor gains after the central bank signaled it expected no change in interest rates through 2023 even as inflation slightly overshoots its target. The Dow Jones Industrial Average jumped as much as 200 points at its high and remained up around 160 points.
(Bloomberg 3/17/21)
Greenback Extends Broad Drop Ahead of Powell on Rate Outlook
The greenback is at a session low ahead of Fed Chair Jerome Powell’s press conference as traders sell the dollar on expectations the central bank will be on hold for the foreseeable future.
The Bloomberg Dollar Spot Index is -0.3%; commodity and emerging market currencies leading gainers; yields rise
EUR/USD is +0.5% at 1.1958 after stops are triggered above the key pivot level of 1.1952, the Feb. 5 low; eyes double top ahead of 1.20
USD/JPY erases advance and trades at 108.95
Dow Up 160 Points As Stocks Turn Higher After Fed Policy Announcement
Stock-market investors reacted positively to the Federal Reserve's policy announcement, erasing losses or extending minor gains after the central bank signaled it expected no change in interest rates through 2023 even as inflation slightly overshoots its target. The Dow Jones Industrial Average jumped as much as 200 points at its high and remained up around 160 points.
(Bloomberg 3/17/21)
Greenback Extends Broad Drop Ahead of Powell on Rate Outlook
The greenback is at a session low ahead of Fed Chair Jerome Powell’s press conference as traders sell the dollar on expectations the central bank will be on hold for the foreseeable future.
The Bloomberg Dollar Spot Index is -0.3%; commodity and emerging market currencies leading gainers; yields rise
EUR/USD is +0.5% at 1.1958 after stops are triggered above the key pivot level of 1.1952, the Feb. 5 low; eyes double top ahead of 1.20
USD/JPY erases advance and trades at 108.95
March 10, 2021
SGH Insight
I take the Fed’s position that rate hikes are unlikely until after 2023 as a baseline (of course we get new dots next week but I don’t anticipate they will move enough to show a change in the median 2023 rate forecast). The degree of job growth needed in addition to actual inflation makes this a reasonable expectation in light of the Fed’s new policy framework.
Market Validation
(Bloomberg 3/17/21)
UST 5s30s Curve Steepens 10bp Toward 2021 High, Most in a Year
Treasury yield curve is sharply steeper in response to Federal Reserve message being articulated by Chair Powell following FOMC decision, widening 5s30s spread by 10bp, its biggest increase in a year. Front-end and intermediate yields are falling as Powell sounds dovish tones, saying it’s premature to discuss tapering asset purchases and that an announcement on SLR exemption is planned in the coming days.
Five-year yield declined as much as 6.5bp to 0.764%, while 30-year remains nearly 5bp higher on the day at around 2.42%; 5s30s curve touched 166.3bp, within 1bp of its 2021 high on Feb. 24
10-year yield briefly erased an increase of as much as 7bp to 1.689%, the highest level since January, reached before the FOMC decision; 10-year futures are near best levels of the day around 132-06
Gains led by belly of the curve richened the 2s5s10s fly by 9bp on the day while 2s10s spread exceeded 150bp for the first time since 2015
Long-end lag reflects focus on inflation outlook, and steepening of 5s30s curve by more than 10bp is largest one-day move since March 17, 2020, during the liquidity crisis
UST 5s30s Curve Steepens 10bp Toward 2021 High, Most in a Year
Treasury yield curve is sharply steeper in response to Federal Reserve message being articulated by Chair Powell following FOMC decision, widening 5s30s spread by 10bp, its biggest increase in a year. Front-end and intermediate yields are falling as Powell sounds dovish tones, saying it’s premature to discuss tapering asset purchases and that an announcement on SLR exemption is planned in the coming days.
Five-year yield declined as much as 6.5bp to 0.764%, while 30-year remains nearly 5bp higher on the day at around 2.42%; 5s30s curve touched 166.3bp, within 1bp of its 2021 high on Feb. 24
10-year yield briefly erased an increase of as much as 7bp to 1.689%, the highest level since January, reached before the FOMC decision; 10-year futures are near best levels of the day around 132-06
Gains led by belly of the curve richened the 2s5s10s fly by 9bp on the day while 2s10s spread exceeded 150bp for the first time since 2015
Long-end lag reflects focus on inflation outlook, and steepening of 5s30s curve by more than 10bp is largest one-day move since March 17, 2020, during the liquidity crisis
March 9, 2021
SGH Insight
** The pace of these purchase will therefore be a topic for discussion at the Executive Board meeting today and at the wider Governing Council discussions tomorrow and Thursday. We expect the pace of PEPP purchases will be modestly stepped up as a signaling device to lean into rising yields, but within its overall “envelope” of 1.85 trillion euros that leaves plenty of room for such flexibility, as (almost) no Council member thinks the program itself needs revision. As of March 5, the ECB had conducted 878 billion euros in PEPP purchases, leaving almost a trillion still unused in its arsenal.
Market Validation
(Bloomberg 3/11/21)
Euro Fades, Bond Yields Dip as ECB Signals Faster Bond Purchases
The euro dipped from the day’s highs and German 10-year bond yields declined after the European Central Bank indicated it will step up the pace of purchases under its PEPP program over the next quarter. Rates were kept unchanged as expected.
Euro Fades, Bond Yields Dip as ECB Signals Faster Bond Purchases
The euro dipped from the day’s highs and German 10-year bond yields declined after the European Central Bank indicated it will step up the pace of purchases under its PEPP program over the next quarter. Rates were kept unchanged as expected.
March 2, 2021
SGH Insight
** And while expectations in general are that Beijing will, like last year, refrain from setting a formal GDP target for 2021, our understanding is that Premier Li Keqiang will propose an option to the NPC Standing Committee, whether adopted or not, of setting an easily met GDP target of above 6.0% as well. The Politburo’s expectations are for GDP growth this year to fall in the 8.3 - 8.5% range.
Market Validation
Policy Validation
(Bloomberg 3/5/21)
China set a conservative economic growth target that signals more restrained monetary and fiscal policies this year, in contrast to other major nations still pumping in stimulus to support growth. The government set a growth target of above 6% for the year, well below what economists forecast, and will narrow the
budget deficit to 3.2% of gross domestic product, Premier Li Keqiang said Friday at the opening of the National People’s Congress. While the fiscal gap is lower than last year, it’s above the 3% expected by many analysts, signaling Beijing still
sees a need for spending to support the recovery. “A target of over 6% will enable all of us to devote full energy to promoting reform, innovation, and high-quality
development,” said Li.
(Bloomberg 3/5/21)
China set a conservative economic growth target that signals more restrained monetary and fiscal policies this year, in contrast to other major nations still pumping in stimulus to support growth. The government set a growth target of above 6% for the year, well below what economists forecast, and will narrow the
budget deficit to 3.2% of gross domestic product, Premier Li Keqiang said Friday at the opening of the National People’s Congress. While the fiscal gap is lower than last year, it’s above the 3% expected by many analysts, signaling Beijing still
sees a need for spending to support the recovery. “A target of over 6% will enable all of us to devote full energy to promoting reform, innovation, and high-quality
development,” said Li.
March 4, 2021
SGH Insight
Saudi Arabia is likely to press at today’s OPEC+ meeting for a “calibrated” increase in the group’s crude oil output starting in April, staggering an easing of its own voluntary withholding of one million barrels per day over the next few months, a cautious approach that should keep a more bullish tone to crude prices and which Riyadh believes will help stabilize benchmark crude prices in a narrow $62 to $68 a barrel price range.
The Saudi oil delegation, led by Prince Abdul Aziz al-Salman, will concede some additional output by Russia and some of the most fiscally hard-pressed OPEC+ members. But in effect, the Saudis oil stance means it is more likely than not that OPEC+ will be increasing its collective oil output by no more than 500,000 additional barrels per day in April, and only slowly building up to some 1.5 million bpd in extra crude output through the next several months.
Market Validation
The Saudi oil delegation, led by Prince Abdul Aziz al-Salman, will concede some additional output by Russia and some of the most fiscally hard-pressed OPEC+ members. But in effect, the Saudis oil stance means it is more likely than not that OPEC+ will be increasing its collective oil output by no more than 500,000 additional barrels per day in April, and only slowly building up to some 1.5 million bpd in extra crude output through the next several months.
(Bloomberg 3/4/21)
OPEC+ decided to keep a tight limit on oil production next month, sending prices soaring in a market that had been expecting additional supply.
The agreement is a victory for Saudi Arabia, which has consistently pushed to tighten the market. It leaves the world facing a significant supply squeeze, higher energy costs and the risk of inflation just as widespread vaccination allows economies to emerge from the Covid-19 downturn.
The cartel had been debating whether to restore as much as 1.5 million barrels a day of output. But after being urged to “keep our powder dry” by Saudi Energy Minister Prince Abdulaziz bin Salman, members agreed to hold steady at current levels -- with the exception of modest increases granted to Russia and Kazakhstan.
In a briefing after Thursday’s meeting, the prince went one step further by making the kingdom’s additional 1 million barrel-a-day production cut open ended. He gave no date for phasing out the voluntary reduction and told reporters he is in no hurry to do so.
Russia and Kazakhstan secured exemptions from the deal, allowing them to boost output by 130,000 and 20,000 barrels a day in April, respectively, “due to continued seasonal consumption patterns,” according to a statement posted on OPEC’s website. The two nations were granted similar allowances for February and March.
OPEC+ decided to keep a tight limit on oil production next month, sending prices soaring in a market that had been expecting additional supply.
The agreement is a victory for Saudi Arabia, which has consistently pushed to tighten the market. It leaves the world facing a significant supply squeeze, higher energy costs and the risk of inflation just as widespread vaccination allows economies to emerge from the Covid-19 downturn.
The cartel had been debating whether to restore as much as 1.5 million barrels a day of output. But after being urged to “keep our powder dry” by Saudi Energy Minister Prince Abdulaziz bin Salman, members agreed to hold steady at current levels -- with the exception of modest increases granted to Russia and Kazakhstan.
In a briefing after Thursday’s meeting, the prince went one step further by making the kingdom’s additional 1 million barrel-a-day production cut open ended. He gave no date for phasing out the voluntary reduction and told reporters he is in no hurry to do so.
Russia and Kazakhstan secured exemptions from the deal, allowing them to boost output by 130,000 and 20,000 barrels a day in April, respectively, “due to continued seasonal consumption patterns,” according to a statement posted on OPEC’s website. The two nations were granted similar allowances for February and March.
February 26, 2021
SGH Insight
Federal Reserve officials may be feeling a bit shell-shocked by the violent price action in the bond markets on Thursday, but their concern is less about the surge in longer-dated treasury yields – they really are ok with it, at least so far – than more specifically the snap in short rates, pulling forward around three hikes priced in for 2023 and with even some optionality creeping into 2022.
** Fed officials will be watching the markets closely today to gauge how much of yesterday’s chaotic markets were driven by technical one-off factors that more or less correct. But if the pricing on rate hikes looks to persist, our sense is that Fed officials are very likely to verbally intervene to push back, with the aim to regain control of the policy narrative on the lagged reaction function under the new policy framework.
Market Validation
** Fed officials will be watching the markets closely today to gauge how much of yesterday’s chaotic markets were driven by technical one-off factors that more or less correct. But if the pricing on rate hikes looks to persist, our sense is that Fed officials are very likely to verbally intervene to push back, with the aim to regain control of the policy narrative on the lagged reaction function under the new policy framework.
(Bloomberg 3/2/21)
Treasuries Firm; Brainard Says Last Week’s Swing ‘Caught My Eye’
Treasuries continue to trade with a bid tone across belly of the curve, which extended outperformance as Federal Reserve Governor Lael Brainard sounded a dovish tone concerning last week’s bond market volatility.
Outperformance by intermediate sectors tightened 2s5s10s fly by 4.5bp on the day as 5-year yields shed 2.5bp outright
Treasury 10-year note futures are near session highs, with yields slightly richer vs Monday’s close, while 30-year yields remain ~2bp cheaper on the day
Policy Validation
(MarketWatch 3/2/21)
Fed's Brainard expresses unease about last week's bond market turmoil
Size and speed of last week's bond market selloff caught her eye, Fed Governor says
Federal Reserve Governor Lael Brainard on Tuesday became the first top official at the central bank to express unease about last week's sharp rise in longer-term U.S. Treasury yields.
Asked about the bond market during a talk at the Council of Foreign Relations, Brainard said she was "paying close attention to market developments."
"Some of those moves last week and the speed of the moves caught my eye," Brainard said.
"I would be concerned if I saw disorderly conditions or persistent tightening in financial conditions that could slow progress" towards the central bank's twin goals of a strong labor market and stable 2% longer-run inflation.
Treasuries Firm; Brainard Says Last Week’s Swing ‘Caught My Eye’
Treasuries continue to trade with a bid tone across belly of the curve, which extended outperformance as Federal Reserve Governor Lael Brainard sounded a dovish tone concerning last week’s bond market volatility.
Outperformance by intermediate sectors tightened 2s5s10s fly by 4.5bp on the day as 5-year yields shed 2.5bp outright
Treasury 10-year note futures are near session highs, with yields slightly richer vs Monday’s close, while 30-year yields remain ~2bp cheaper on the day
Policy Validation
(MarketWatch 3/2/21)
Fed's Brainard expresses unease about last week's bond market turmoil
Size and speed of last week's bond market selloff caught her eye, Fed Governor says
Federal Reserve Governor Lael Brainard on Tuesday became the first top official at the central bank to express unease about last week's sharp rise in longer-term U.S. Treasury yields.
Asked about the bond market during a talk at the Council of Foreign Relations, Brainard said she was "paying close attention to market developments."
"Some of those moves last week and the speed of the moves caught my eye," Brainard said.
"I would be concerned if I saw disorderly conditions or persistent tightening in financial conditions that could slow progress" towards the central bank's twin goals of a strong labor market and stable 2% longer-run inflation.
March 1, 2021
SGH Insight
So how does the Fed deal with this situation? After all, the Fed can’t yet prove it won’t hike rates in 2023 or even 2022 because it really just doesn’t know whether it will or not. The Fed can only prove itself by not hiking too early – before its mandates have been met – and we aren’t yet even to the point of tapering. The Fed instead can enhance its rhetoric this week that emphasizes its policy intentions and expectations. Given that market participants are front-running the Fed and know it, a slight change in tone can trigger a reassessment of prospects for Fed tightening. The kinds of phrasing that I am watching for this week include:
1. “…disorderly market adjustments are not desirable…”
2. “…we do watch long term yields to ensure they are consistent with our objectives…”
3. “…disorderly adjustments that lead to a slower recovery will delay lift-off from the zero bound…”
4. “… we have additional tools that we can use to help meet our objectives…”
Market Validation
1. “…disorderly market adjustments are not desirable…”
2. “…we do watch long term yields to ensure they are consistent with our objectives…”
3. “…disorderly adjustments that lead to a slower recovery will delay lift-off from the zero bound…”
4. “… we have additional tools that we can use to help meet our objectives…”
(Bloomberg 3/2/21)
Treasuries Firm; Brainard Says Last Week’s Swing ‘Caught My Eye’
Treasuries continue to trade with a bid tone across belly of the curve, which extended outperformance as Federal Reserve Governor Lael Brainard sounded a dovish tone concerning last week’s bond market volatility.
Outperformance by intermediate sectors tightened 2s5s10s fly by 4.5bp on the day as 5-year yields shed 2.5bp outright Treasury 10-year note futures are near session highs, with yields slightly richer vs Monday’s close, while 30-year yields remain ~2bp cheaper on the day
Brainard said she’s paying close attention to market developments and that the speed of last week’s moves caught her eye
Around the same time Fed’s Daly said the central bank needs to be patient in implementing its new monetary policy strategy
Policy Validation
(Bloomberg 3/2/21)
Brainard Says Recent Bond Market Moves Have ‘Caught’ Her Eye
Fed governor cites improving outlook while noting risks remain
Says economy remains far from Fed’s goals for inflation, jobsBy Craig Torres
Federal Reserve Governor Lael Brainard said it will take “some time” to meet the conditions laid out by the U.S. central bank for reducing the pace of its massive bond purchases, while noting recent bond market volatility.
“I am paying close attention to market developments,” she said Tuesday in response to a question after giving a speech. “Some of those moves last week, and the speed of the moves, caught my eye. I would be concerned if disorderly conditions or of a persistent tightening in financial conditions that could slow progress towards our goal.”
Treasuries Firm; Brainard Says Last Week’s Swing ‘Caught My Eye’
Treasuries continue to trade with a bid tone across belly of the curve, which extended outperformance as Federal Reserve Governor Lael Brainard sounded a dovish tone concerning last week’s bond market volatility.
Outperformance by intermediate sectors tightened 2s5s10s fly by 4.5bp on the day as 5-year yields shed 2.5bp outright Treasury 10-year note futures are near session highs, with yields slightly richer vs Monday’s close, while 30-year yields remain ~2bp cheaper on the day
Brainard said she’s paying close attention to market developments and that the speed of last week’s moves caught her eye
Around the same time Fed’s Daly said the central bank needs to be patient in implementing its new monetary policy strategy
Policy Validation
(Bloomberg 3/2/21)
Brainard Says Recent Bond Market Moves Have ‘Caught’ Her Eye
Fed governor cites improving outlook while noting risks remain
Says economy remains far from Fed’s goals for inflation, jobsBy Craig Torres
Federal Reserve Governor Lael Brainard said it will take “some time” to meet the conditions laid out by the U.S. central bank for reducing the pace of its massive bond purchases, while noting recent bond market volatility.
“I am paying close attention to market developments,” she said Tuesday in response to a question after giving a speech. “Some of those moves last week, and the speed of the moves, caught my eye. I would be concerned if disorderly conditions or of a persistent tightening in financial conditions that could slow progress towards our goal.”
February 22, 2021
SGH Insight
Fed Watch Bottom Line
The Fed remains unconcerned by rising long yields. In a sense, such increases driven by an improving economic outlook are welcome. The Fed would be more concerned if market pricing for a rate hike moved into 2022. Policy makers would have a hard time seeing that as consistent with their signaling and the current data flow. Remember, while they are very much paying attention to the totality of the data, policy makers are primarily looking at employment and inflation moving substantially closer to their objectives before they strongly signal a more imminent change in policy.
Market Validation
The Fed remains unconcerned by rising long yields. In a sense, such increases driven by an improving economic outlook are welcome. The Fed would be more concerned if market pricing for a rate hike moved into 2022. Policy makers would have a hard time seeing that as consistent with their signaling and the current data flow. Remember, while they are very much paying attention to the totality of the data, policy makers are primarily looking at employment and inflation moving substantially closer to their objectives before they strongly signal a more imminent change in policy.
Policy Validation
(Bloomberg 2/23/21)
*POWELL: RATES ARE MOVING UP DUE TO HIGHER GROWTH EXPECTATIONS
*POWELL: LOOK AT BROAD RANGE OF CONDITIONS, INCLUDING YIELDS
*POWELL: MOVE IN YIELDS REFLECTS MORE CONFIDENCE IN THE ECONOMY
*POWELL: EXPECT US TO MOVE CAREFULLY AND PATIENTLY OVER TIME
*POWELL: THERE'S LONG WAY TO GO, WE'RE 10M JOBS BELOW PRE-VIRUS
(Bloomberg 2/23/21)
*POWELL: RATES ARE MOVING UP DUE TO HIGHER GROWTH EXPECTATIONS
*POWELL: LOOK AT BROAD RANGE OF CONDITIONS, INCLUDING YIELDS
*POWELL: MOVE IN YIELDS REFLECTS MORE CONFIDENCE IN THE ECONOMY
*POWELL: EXPECT US TO MOVE CAREFULLY AND PATIENTLY OVER TIME
*POWELL: THERE'S LONG WAY TO GO, WE'RE 10M JOBS BELOW PRE-VIRUS
February 22, 2021
SGH Insight
** We expect Chairman Powell and his FOMC colleagues to stick close to the script since the January FOMC meeting: the recovery, though definitely promising, is still far from certain much less the labor market gains being widely shared, and a still subdued, inertial inflation is the greater near risk than “temporary” upward price pressures; that translates into a full throated support for an aggressive fiscal policy and for the Fed’s own optimal rates and balance sheet policy to firmly remain on a highly accommodative path.
Market Validation
Policy Validation
Bloomberg 2/23/21
Powell Signals Continued Fed Aid for Economy He Sees Improving
By Rich Miller
Federal Reserve Chairman Jerome Powell signaled that the central bank was nowhere close to pulling back on its support for the pandemic-damaged U.S. economy even as he voiced expectations for a return to more normal, improved activity later this year.
“The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved,” he said in the text of testimony to be delivered Tuesday to the Senate Banking Committee.
Bloomberg 2/23/21
Powell Signals Continued Fed Aid for Economy He Sees Improving
By Rich Miller
Federal Reserve Chairman Jerome Powell signaled that the central bank was nowhere close to pulling back on its support for the pandemic-damaged U.S. economy even as he voiced expectations for a return to more normal, improved activity later this year.
“The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved,” he said in the text of testimony to be delivered Tuesday to the Senate Banking Committee.
News and Events
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