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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.
November 17, 2024
SGH Insight
Monday Morning Notes, 11/18/24
I am back from vacation and catching up on last week’s slew of Fedspeak. We focus this week’s note on that Fedspeak given the waning confidence among market participants in the Fed’s willingness to deliver another 25bp rate cut at the December FOMC meeting.
Bottom Line: It’s very clear the Fed is paving the way to a skip or a pause. The crux of the debate now is whether the Fed believes policy rates are already close enough to the neutral rate to skip at the December meeting, or is the Fed saying after it brings policy down another 25bp it will be in the range to slow the pace of rate cuts. We think it’s the latter given that speakers still anticipate multiple rate cuts and state that policy rates remain restrictive. Powell’s September 30 guidance on cuts in November and December likely still stands, and what appears to be hawkish rhetoric is setting the stage for a January skip.
Market Validation
I am back from vacation and catching up on last week’s slew of Fedspeak. We focus this week’s note on that Fedspeak given the waning confidence among market participants in the Fed’s willingness to deliver another 25bp rate cut at the December FOMC meeting.
Bottom Line: It’s very clear the Fed is paving the way to a skip or a pause. The crux of the debate now is whether the Fed believes policy rates are already close enough to the neutral rate to skip at the December meeting, or is the Fed saying after it brings policy down another 25bp it will be in the range to slow the pace of rate cuts. We think it’s the latter given that speakers still anticipate multiple rate cuts and state that policy rates remain restrictive. Powell’s September 30 guidance on cuts in November and December likely still stands, and what appears to be hawkish rhetoric is setting the stage for a January skip.
Bloomberg 12/6/24
US Treasuries rallied and traders boosted
their bets on a Federal Reserve interest-rate reduction this
month after a mixed November employment report.
Yields on two-year notes, which are most sensitive to the
central bank’s policy, slid four basis points on 4.10% on Friday
after data showed both nonfarm payrolls and the unemployment
rate increased last month. Traders are pricing in about 21 basis
points worth of easing at the Fed’s December meeting, from about
16 basis points before the data.
US Treasuries rallied and traders boosted
their bets on a Federal Reserve interest-rate reduction this
month after a mixed November employment report.
Yields on two-year notes, which are most sensitive to the
central bank’s policy, slid four basis points on 4.10% on Friday
after data showed both nonfarm payrolls and the unemployment
rate increased last month. Traders are pricing in about 21 basis
points worth of easing at the Fed’s December meeting, from about
16 basis points before the data.
November 24, 2024
SGH Insight
Bottom Line
The Fed has positioned itself to slow the pace of rate cuts, and we think tactically it is anticipating that slowing will occur after the December FOMC meeting. We can’t guarantee that outcome; the direction is such that the momentum could build in favor of a December skip, although that outcome seems to require more confidence that the Fed is done cutting rates whereas speakers seem confident in the need for further rate cuts. Speakers won’t leave market participants completely in the dark going into the blackout and will likely firm up the guidance in early December.
Market Validation
The Fed has positioned itself to slow the pace of rate cuts, and we think tactically it is anticipating that slowing will occur after the December FOMC meeting. We can’t guarantee that outcome; the direction is such that the momentum could build in favor of a December skip, although that outcome seems to require more confidence that the Fed is done cutting rates whereas speakers seem confident in the need for further rate cuts. Speakers won’t leave market participants completely in the dark going into the blackout and will likely firm up the guidance in early December.
Bloomberg 12/2/24
Federal Reserve Governor Christopher Waller said he’s inclined to vote for another reduction in interest rates when officials meet later this month, though data due before then could make the case for holding them steady.
“At present I lean toward supporting a cut to the policy rate at our December meeting,” Waller said in prepared remarks at a conference on the Fed’s framework review in Washington sponsored by the American Institute for Economic Research. “But that decision will depend on whether data that we will receive before then surprises to the upside and alters my forecast for the path of inflation.”
Waller said recent data had raised concerns that inflation may be stalling above the 2% target but added “there is no indication” that prices in key service categories should remain at their current levels or increase.
“I believe the evidence is strong that policy continues to be significantly restrictive and that cutting again will only mean that we aren’t pressing on the brake pedal quite as hard,” Waller said in the text of his remarks. “Another factor that supports a further rate cut is that the labor market appears to finally be in balance, and we should aim to keep it that way.”
Federal Reserve Governor Christopher Waller said he’s inclined to vote for another reduction in interest rates when officials meet later this month, though data due before then could make the case for holding them steady.
“At present I lean toward supporting a cut to the policy rate at our December meeting,” Waller said in prepared remarks at a conference on the Fed’s framework review in Washington sponsored by the American Institute for Economic Research. “But that decision will depend on whether data that we will receive before then surprises to the upside and alters my forecast for the path of inflation.”
Waller said recent data had raised concerns that inflation may be stalling above the 2% target but added “there is no indication” that prices in key service categories should remain at their current levels or increase.
“I believe the evidence is strong that policy continues to be significantly restrictive and that cutting again will only mean that we aren’t pressing on the brake pedal quite as hard,” Waller said in the text of his remarks. “Another factor that supports a further rate cut is that the labor market appears to finally be in balance, and we should aim to keep it that way.”
December 1, 2024
SGH Insight
We expect Fed speakers will firm up expectations for the December FOMC meeting this week ahead of the blackout period. We anticipate speakers will guide toward another 25bp rate cut this month before slowing down the pace of rate cuts with a January skip that could become a pause if the labor market firms and inflation stalls.
The highlight of the week is the November employment report. Expectations are low with market participants anticipating only a 200k increase in nonfarm payrolls which when averaged with October would be a gain of only about 100k per month, not disastrous but not exciting either. A downside surprise would push the run rate of job growth below 200k, which would call into question the strength of the labor market and raise the risk of more rate cuts in 2025 than market participants currently anticipate. Also watch the unemployment rate for an upside surprise; the unemployment rate was 4.14% in October, very close to being rounded up to 4.2%.
Market Validation
The highlight of the week is the November employment report. Expectations are low with market participants anticipating only a 200k increase in nonfarm payrolls which when averaged with October would be a gain of only about 100k per month, not disastrous but not exciting either. A downside surprise would push the run rate of job growth below 200k, which would call into question the strength of the labor market and raise the risk of more rate cuts in 2025 than market participants currently anticipate. Also watch the unemployment rate for an upside surprise; the unemployment rate was 4.14% in October, very close to being rounded up to 4.2%.
Bloomberg 12/2/24
Rates traders are heeding the message from Fed Governor Christopher Waller and have boosted the expected probability of a quarter-point rate cut this month to around 68%, from 59% at the end of last week. What’s more, the outlook for three reductions over the next year on a cumulative basis has once again firmed up.
Image
Remember that Waller has been regarded as an important bellwether for the central bank since late November last year, when he indicated a shift in his usually-hawkish stance to a more dovish one. That change kicked off a wave of bets that the Fed’s next move would be to lower borrowing costs, which were proven prescient.
( BBG) 12/06 13:30 *US NOV. UNEMPLOYMENT RATE 4.2%; EST. 4.1%
Rates traders are heeding the message from Fed Governor Christopher Waller and have boosted the expected probability of a quarter-point rate cut this month to around 68%, from 59% at the end of last week. What’s more, the outlook for three reductions over the next year on a cumulative basis has once again firmed up.
Image
Remember that Waller has been regarded as an important bellwether for the central bank since late November last year, when he indicated a shift in his usually-hawkish stance to a more dovish one. That change kicked off a wave of bets that the Fed’s next move would be to lower borrowing costs, which were proven prescient.
( BBG) 12/06 13:30 *US NOV. UNEMPLOYMENT RATE 4.2%; EST. 4.1%
November 7, 2024
SGH Insight
While the BOJ’s policy commentary in October certainly did not tee up a December rate move, it probably shifted the needle enough for the Bank to follow through with more messaging about the timing of another rate hike if it is forced to try to help arrest the yen’s slide.
In other words, the door to a hike in December is ajar.
Market Validation
In other words, the door to a hike in December is ajar.
Bloomberg 11/21/24
Bank of Japan Governor Kazuo Ueda gave the
clearest hint yet that the central bank’s next monetary policy
meeting will involve a live discussion over whether to raise
interest rates.
“It’s impossible to predict the outcome of the meeting at
this point,” Ueda said in response to questions at a Europlace
forum in Tokyo on Thursday. “The next meeting is December, but
there’s still a month to go. The vast amount of data and
information will become available between now and then.”
Bank of Japan Governor Kazuo Ueda gave the
clearest hint yet that the central bank’s next monetary policy
meeting will involve a live discussion over whether to raise
interest rates.
“It’s impossible to predict the outcome of the meeting at
this point,” Ueda said in response to questions at a Europlace
forum in Tokyo on Thursday. “The next meeting is December, but
there’s still a month to go. The vast amount of data and
information will become available between now and then.”
November 11, 2024
SGH Insight
Bottom Line: The near-term data, not speculation about Trump’s economic agenda, drives Fed policy, and the Fed sees that data as sufficient to start searching for an opportunity to slow the pace of rate cuts. Assuming the job market stabilizes, we think this more likely will occur in January rather than December, and we assign a 75% chance of a December cut. If post-election animal spirits drive activity and job growth, a skip will become a pause as the Fed will likely find it difficult to cut in March if the economy gains steam during the first quarter.
Typically, the Fed reaches consensus on policy changes over the course of more than one meeting, which implies a shift after the December meeting.Powell said the Fed is now only just beginning to think about slowing the pace of rate cuts. That suggests an expectation to follow through with the September SEP and cut rates in December, at which time it will have a more concrete discussion about likely skipping the January meeting.
We can’t at this juncture rule out that the Fed may opt to skip in December. The cleanest path for the Fed remains to cut rates in December and then use a combination of the press conference and a fresh SEP to guide to a skip in January. Still, last week we highlighted three reasons the Fed could use to pass on another rate cut at next month’s FOMC meeting, including either higher realized inflation, a firming of the labor market in the context of still strong growth (Powell sees growth as a driving factor in the run up in rates), or quickly rising market-based inflation expectations.
Market Validation
Typically, the Fed reaches consensus on policy changes over the course of more than one meeting, which implies a shift after the December meeting.Powell said the Fed is now only just beginning to think about slowing the pace of rate cuts. That suggests an expectation to follow through with the September SEP and cut rates in December, at which time it will have a more concrete discussion about likely skipping the January meeting.
We can’t at this juncture rule out that the Fed may opt to skip in December. The cleanest path for the Fed remains to cut rates in December and then use a combination of the press conference and a fresh SEP to guide to a skip in January. Still, last week we highlighted three reasons the Fed could use to pass on another rate cut at next month’s FOMC meeting, including either higher realized inflation, a firming of the labor market in the context of still strong growth (Powell sees growth as a driving factor in the run up in rates), or quickly rising market-based inflation expectations.
Bloomberg 11/13/24
Traders have grown more certain of a quarter-point Fed rate cut in December after inflation data came in line with economist estimates. They’re now pricing more than a 60% chance of a reduction next month, from a 50-50 probability seen on Tuesday.
Wall Street Journal 11/15/24
A Federal Reserve official said the central bank
could eventually need to slow down the pace at which it is lowering rates and
said it was too soon to say whether that should happen at the central bank's
meeting next month.
Another rate cut in December is "certainly on the table, but it's not a done
deal," said Boston Fed President Susan Collins in an interview Thursday.
"There's more data that we will see between now and December, and we'll have
to continue to weigh what makes sense."
The Fed's next meeting is Dec. 17-18. Officials will see data on inflation and
employment for November before that meeting.
Bloomberg 11/25/24
US Treasuries have added to the gains spurred by the late-Friday announcement of Scott Bessent — a Wall Street veteran who investors expect will take the sting out of the administration’s more aggressive trade and economic policy proposals — as President-elect Donald Trump’s Treasury secretary choice.
Monday’s rally trimmed yields by more than 10 basis points across five- to 30-year maturities, gaining momentum in New York trading amid a drop in oil. The dollar slumped by the most in more than two weeks before paring the loss.
“Bessent is viewed as a potentially moderating influence on the incoming administration’s policies,” said Shaun Osborne, chief foreign-exchange strategist at Scotiabank. “Favoring gradualism on tariffs, for example.”
Bessent, who runs macro hedge fund Key Square Group, has called for a gradual approach to implementing trade restrictions and has appeared open to negotiating the exact size of tariffs championed by the president-elect. In an interview with the Wall Street Journal, Bessent said his priority will be to deliver on Trump’s various tax cut pledges, while also cutting spending and “maintaining the status of the dollar as the world’s reserve currency.”
Traders have grown more certain of a quarter-point Fed rate cut in December after inflation data came in line with economist estimates. They’re now pricing more than a 60% chance of a reduction next month, from a 50-50 probability seen on Tuesday.
Wall Street Journal 11/15/24
A Federal Reserve official said the central bank
could eventually need to slow down the pace at which it is lowering rates and
said it was too soon to say whether that should happen at the central bank's
meeting next month.
Another rate cut in December is "certainly on the table, but it's not a done
deal," said Boston Fed President Susan Collins in an interview Thursday.
"There's more data that we will see between now and December, and we'll have
to continue to weigh what makes sense."
The Fed's next meeting is Dec. 17-18. Officials will see data on inflation and
employment for November before that meeting.
Bloomberg 11/25/24
US Treasuries have added to the gains spurred by the late-Friday announcement of Scott Bessent — a Wall Street veteran who investors expect will take the sting out of the administration’s more aggressive trade and economic policy proposals — as President-elect Donald Trump’s Treasury secretary choice.
Monday’s rally trimmed yields by more than 10 basis points across five- to 30-year maturities, gaining momentum in New York trading amid a drop in oil. The dollar slumped by the most in more than two weeks before paring the loss.
“Bessent is viewed as a potentially moderating influence on the incoming administration’s policies,” said Shaun Osborne, chief foreign-exchange strategist at Scotiabank. “Favoring gradualism on tariffs, for example.”
Bessent, who runs macro hedge fund Key Square Group, has called for a gradual approach to implementing trade restrictions and has appeared open to negotiating the exact size of tariffs championed by the president-elect. In an interview with the Wall Street Journal, Bessent said his priority will be to deliver on Trump’s various tax cut pledges, while also cutting spending and “maintaining the status of the dollar as the world’s reserve currency.”
November 7, 2024
SGH Insight
Powell Sets Up For a Pause
Bottom Line: The November FOMC meeting ended as expected with Powell skillfully avoiding making any market moving news. We think Powell is setting the stage for a pause at the January FOMC meeting assuming growth remains solid and the labor market firms, but there is a risk that the incoming data provides enough for the Fed to pull that forward to December.
Market Validation
Bottom Line: The November FOMC meeting ended as expected with Powell skillfully avoiding making any market moving news. We think Powell is setting the stage for a pause at the January FOMC meeting assuming growth remains solid and the labor market firms, but there is a risk that the incoming data provides enough for the Fed to pull that forward to December.
New York Times 11/15/24
A strong economy is giving Federal Reserve officials room to move “carefully” as they lower interest rates, the central bank chair said.
Jerome H. Powell, the chair of the Federal Reserve, said that a solid economy with low unemployment, robust consumer spending and strengthening business investment gives the central bank room to take its time in cutting interest rates.
“The economy is not sending any signals that we need to be in a hurry to lower rates,” Mr. Powell said in a speech prepared for delivery in Dallas on Thursday. “The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.”
The Fed’s policy-setting committee meets next in mid-December, and while policymakers are expected to lower rates by a quarter point at that gathering, Fed officials themselves have made it clear that a reduction is not guaranteed.
Mr. Powell did not address December specifically in his prepared remarks. But officials have made it clear that they will be watching incoming data points — including inflation and jobs figures — as they decide what to do.
“The path for getting there is not preset,” Mr. Powell said on Thursday. “In considering additional adjustments to the target range for the federal funds rate, we will carefully assess incoming data, the evolving outlook, and the balance of risks.”
A strong economy is giving Federal Reserve officials room to move “carefully” as they lower interest rates, the central bank chair said.
Jerome H. Powell, the chair of the Federal Reserve, said that a solid economy with low unemployment, robust consumer spending and strengthening business investment gives the central bank room to take its time in cutting interest rates.
“The economy is not sending any signals that we need to be in a hurry to lower rates,” Mr. Powell said in a speech prepared for delivery in Dallas on Thursday. “The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.”
The Fed’s policy-setting committee meets next in mid-December, and while policymakers are expected to lower rates by a quarter point at that gathering, Fed officials themselves have made it clear that a reduction is not guaranteed.
Mr. Powell did not address December specifically in his prepared remarks. But officials have made it clear that they will be watching incoming data points — including inflation and jobs figures — as they decide what to do.
“The path for getting there is not preset,” Mr. Powell said on Thursday. “In considering additional adjustments to the target range for the federal funds rate, we will carefully assess incoming data, the evolving outlook, and the balance of risks.”
November 6, 2024
SGH Insight
Last week we began highlighting that the Fed can’t skip a meeting without opening the debate about a pause, and market pricing moved further in the direction of a pause even before the economic landscape shifted with last night’s election results. In a sharp rebuke to Democrats and Vice President Kamala Harris, American voters returned Donald Trump to the White House. Voters also likely delivered the Republicans a trifecta with wins in the Senate and the House, although the latter still needs some vote counting to be assured. After winning the trifecta, Republicans can enact a more sweeping and expansionary agenda than expected just a few days ago.
The Fed will still cut interest rates this week, and at this point we think it likely the Fed will follow the September SEP and cut again in December. Even if the Fed follows through with a December cut, and assuming the labor market and the economy hold up, the Fed can respond to increased fiscal policy uncertainty by skipping the January meeting and begin an extended pause.
It would be a challenge now for the Fed to set up a pause without appearing overtly political. We expect Federal Reserve Chair Jerome Powell will reiterate that the Fed does not take politics into account when setting policy and can’t change the policy path ahead of any implementation of tariff, immigration, or fiscal policies. Indeed, even a pause after the December FOMC meeting will be observationally equivalent to a political reaction and may draw the ire of President-elect Trump.
Bottom Line: We hesitate to make sweeping predictions ahead of any policy implementation. One thing is for sure – Trump inherits a growing economy which the Fed has already begun to support by cutting rates. It gives him a tailwind, and it’s up to Trump and his advisors use the tailwind wisely. At the end of the day, Republicans will need to deliver on the campaign promise of a better economy, and that likely won’t happen with reckless tariff, immigration, and fiscal agendas.( nov 6)
Market Validation
The Fed will still cut interest rates this week, and at this point we think it likely the Fed will follow the September SEP and cut again in December. Even if the Fed follows through with a December cut, and assuming the labor market and the economy hold up, the Fed can respond to increased fiscal policy uncertainty by skipping the January meeting and begin an extended pause.
It would be a challenge now for the Fed to set up a pause without appearing overtly political. We expect Federal Reserve Chair Jerome Powell will reiterate that the Fed does not take politics into account when setting policy and can’t change the policy path ahead of any implementation of tariff, immigration, or fiscal policies. Indeed, even a pause after the December FOMC meeting will be observationally equivalent to a political reaction and may draw the ire of President-elect Trump.
Bottom Line: We hesitate to make sweeping predictions ahead of any policy implementation. One thing is for sure – Trump inherits a growing economy which the Fed has already begun to support by cutting rates. It gives him a tailwind, and it’s up to Trump and his advisors use the tailwind wisely. At the end of the day, Republicans will need to deliver on the campaign promise of a better economy, and that likely won’t happen with reckless tariff, immigration, and fiscal agendas.( nov 6)
Fed cuts rates by 0.25%, Powell deflects questions about Trump policies
By Alex Steger
Citywire 11/7/24
Powell was asked about the impact of the next administration’s policies on inflation and the economy but said that these would not play into the Fed’s immediate decisions.
‘Let me say in the near-term, the election will have no effects on our policy decisions. As you know, many, many things affect the economy and anyone who writes down forecasts in their job will tell you that the economy is quite difficult to forecast looking out past the very near term,’ he said.
‘Here, we don’t know what the timing and substance of any policy changes will be. We therefore don’t know what the effects on the economy would be. Specifically, whether and to what extent those policies would matter for the achievement of our goal variables, maximum employment, and price stability. We don’t guess, we don’t speculate, and we don’t assume.’
Bloomberg 11/25/24
US Treasuries have added to the gains spurred by the late-Friday announcement of Scott Bessent — a Wall Street veteran who investors expect will take the sting out of the administration’s more aggressive trade and economic policy proposals — as President-elect Donald Trump’s Treasury secretary choice.
Monday’s rally trimmed yields by more than 10 basis points across five- to 30-year maturities, gaining momentum in New York trading amid a drop in oil. The dollar slumped by the most in more than two weeks before paring the loss.
“Bessent is viewed as a potentially moderating influence on the incoming administration’s policies,” said Shaun Osborne, chief foreign-exchange strategist at Scotiabank. “Favoring gradualism on tariffs, for example.”
ImageBessent, who runs macro hedge fund Key Square Group, has called for a gradual approach to implementing trade restrictions and has appeared open to negotiating the exact size of tariffs championed by the president-elect. In an interview with the Wall Street Journal, Bessent said his priority will be to deliver on Trump’s various tax cut pledges, while also cutting spending and “maintaining the status of the dollar as the world’s reserve currency.”
By Alex Steger
Citywire 11/7/24
Powell was asked about the impact of the next administration’s policies on inflation and the economy but said that these would not play into the Fed’s immediate decisions.
‘Let me say in the near-term, the election will have no effects on our policy decisions. As you know, many, many things affect the economy and anyone who writes down forecasts in their job will tell you that the economy is quite difficult to forecast looking out past the very near term,’ he said.
‘Here, we don’t know what the timing and substance of any policy changes will be. We therefore don’t know what the effects on the economy would be. Specifically, whether and to what extent those policies would matter for the achievement of our goal variables, maximum employment, and price stability. We don’t guess, we don’t speculate, and we don’t assume.’
Bloomberg 11/25/24
US Treasuries have added to the gains spurred by the late-Friday announcement of Scott Bessent — a Wall Street veteran who investors expect will take the sting out of the administration’s more aggressive trade and economic policy proposals — as President-elect Donald Trump’s Treasury secretary choice.
Monday’s rally trimmed yields by more than 10 basis points across five- to 30-year maturities, gaining momentum in New York trading amid a drop in oil. The dollar slumped by the most in more than two weeks before paring the loss.
“Bessent is viewed as a potentially moderating influence on the incoming administration’s policies,” said Shaun Osborne, chief foreign-exchange strategist at Scotiabank. “Favoring gradualism on tariffs, for example.”
ImageBessent, who runs macro hedge fund Key Square Group, has called for a gradual approach to implementing trade restrictions and has appeared open to negotiating the exact size of tariffs championed by the president-elect. In an interview with the Wall Street Journal, Bessent said his priority will be to deliver on Trump’s various tax cut pledges, while also cutting spending and “maintaining the status of the dollar as the world’s reserve currency.”
November 3, 2024
SGH Insight
Fed Speak and Discussion
The Fed will cut rates 25bp this week and signal that it anticipates further rate cuts in this cycle, but Powell will add that the exact timing and number of cuts remains data dependent.
There hasn’t been serious conversation about skipping the meeting, and the employment report didn’t give reason for the Fed to have a change of heart during the blackout period. If Trump wins the election this week, we anticipate that Powell will say that outcome does not affect the Fed’s decisions and that the Fed will react as appropriate to fiscal policy as it is implemented.
We think it’s too early to expect the Fed to entertain a conversation of skipping a meeting. If the Fed was to skip or pause in this cycle, we think it more likely to happen in January than December. The Fed expects to bring policy to a more neutral setting, and policy rates at 4.375% after the December meeting would be still well above upper-end estimates of the neutral policy rate. If growth stays elevated and the labor market firms up, at that point the Fed can signal a more gradual pace of rate cuts, thereby deferring a conversation about a pause until 2025.
Moreover, we think market participants are getting too far ahead of the story on the implications of new tariffs for inflation. Not only is the ultimate magnitude of tariffs uncertain but also, they will be at least initially disruptive, and the possibility of trade wars creates additional uncertainty for firms. Moreover, the Fed is likely to view any inflation from tariffs as transitory. Similarly, deportations on a scale significant from a macro perspective will also be disruptive for firms.
Market Validation
The Fed will cut rates 25bp this week and signal that it anticipates further rate cuts in this cycle, but Powell will add that the exact timing and number of cuts remains data dependent.
There hasn’t been serious conversation about skipping the meeting, and the employment report didn’t give reason for the Fed to have a change of heart during the blackout period. If Trump wins the election this week, we anticipate that Powell will say that outcome does not affect the Fed’s decisions and that the Fed will react as appropriate to fiscal policy as it is implemented.
We think it’s too early to expect the Fed to entertain a conversation of skipping a meeting. If the Fed was to skip or pause in this cycle, we think it more likely to happen in January than December. The Fed expects to bring policy to a more neutral setting, and policy rates at 4.375% after the December meeting would be still well above upper-end estimates of the neutral policy rate. If growth stays elevated and the labor market firms up, at that point the Fed can signal a more gradual pace of rate cuts, thereby deferring a conversation about a pause until 2025.
Moreover, we think market participants are getting too far ahead of the story on the implications of new tariffs for inflation. Not only is the ultimate magnitude of tariffs uncertain but also, they will be at least initially disruptive, and the possibility of trade wars creates additional uncertainty for firms. Moreover, the Fed is likely to view any inflation from tariffs as transitory. Similarly, deportations on a scale significant from a macro perspective will also be disruptive for firms.
*FED LOWERS BENCHMARK RATE 25 BPS TO 4.5%-4.75% RANGE
*Powell: Fed Is Not on Pre-Set Course, Will Continue To Make Decisions Meeting-By-Meeting
*Fed's Powell: We're On a Path To More Neutral Stance, Must See Where Data Lead Us
US election will have no near-term effect on Fed policy: Powell
Nov. 7 (AFP) -- The US presidential election outcome will have "no effects" on central bank policy decisions in the near-term, Federal Reserve Chair Jerome Powell told reporters Thursday, after Republican Donald Trump's victory at the polls.
"We don't know what the timing and substance of any policy changes will be. We therefore don't know what the effects on the economy would be," he added after the Fed unveiled its rate decision. "We don't guess, we don't speculate, and we don't assume."
da-bys/acb
Stocks Near Highs as Powell Gives ‘No Skip Signs’: Markets Wrap
Fed cuts rates for second-straight meeting to support economy
Policymakers change language around job market, inflation
By Rita Nazareth
(Bloomberg) -- Stocks hit fresh all-time highs, Treasury yields fell and the dollar dropped the most since August, with Jerome Powell saying that even after Thursday’s rate cut, policy is still restrictive.
The S&P 500 was up 0.8%. Treasury 10-year yields declined 10 basis points to 4.34%. The Bloomberg Dollar Spot Index fell 0.6%. The Fed Chair said he doesn’t rule “out or in” a December rate cut. He said recent indicators suggest the economy keeps expanding solidly. While inflation expectations remain anchored, core prices remain somewhat elevated, he said. Powell added that in the near term, the election will have no effect on policy.
Bloomberg 11/25/24
US Treasuries have added to the gains spurred by the late-Friday announcement of Scott Bessent — a Wall Street veteran who investors expect will take the sting out of the administration’s more aggressive trade and economic policy proposals — as President-elect Donald Trump’s Treasury secretary choice.
Monday’s rally trimmed yields by more than 10 basis points across five- to 30-year maturities, gaining momentum in New York trading amid a drop in oil. The dollar slumped by the most in more than two weeks before paring the loss.
“Bessent is viewed as a potentially moderating influence on the incoming administration’s policies,” said Shaun Osborne, chief foreign-exchange strategist at Scotiabank. “Favoring gradualism on tariffs, for example.”
ImageBessent, who runs macro hedge fund Key Square Group, has called for a gradual approach to implementing trade restrictions and has appeared open to negotiating the exact size of tariffs championed by the president-elect. In an interview with the Wall Street Journal, Bessent said his priority will be to deliver on Trump’s various tax cut pledges, while also cutting spending and “maintaining the status of the dollar as the world’s reserve currency.”
*Powell: Fed Is Not on Pre-Set Course, Will Continue To Make Decisions Meeting-By-Meeting
*Fed's Powell: We're On a Path To More Neutral Stance, Must See Where Data Lead Us
US election will have no near-term effect on Fed policy: Powell
Nov. 7 (AFP) -- The US presidential election outcome will have "no effects" on central bank policy decisions in the near-term, Federal Reserve Chair Jerome Powell told reporters Thursday, after Republican Donald Trump's victory at the polls.
"We don't know what the timing and substance of any policy changes will be. We therefore don't know what the effects on the economy would be," he added after the Fed unveiled its rate decision. "We don't guess, we don't speculate, and we don't assume."
da-bys/acb
Stocks Near Highs as Powell Gives ‘No Skip Signs’: Markets Wrap
Fed cuts rates for second-straight meeting to support economy
Policymakers change language around job market, inflation
By Rita Nazareth
(Bloomberg) -- Stocks hit fresh all-time highs, Treasury yields fell and the dollar dropped the most since August, with Jerome Powell saying that even after Thursday’s rate cut, policy is still restrictive.
The S&P 500 was up 0.8%. Treasury 10-year yields declined 10 basis points to 4.34%. The Bloomberg Dollar Spot Index fell 0.6%. The Fed Chair said he doesn’t rule “out or in” a December rate cut. He said recent indicators suggest the economy keeps expanding solidly. While inflation expectations remain anchored, core prices remain somewhat elevated, he said. Powell added that in the near term, the election will have no effect on policy.
Bloomberg 11/25/24
US Treasuries have added to the gains spurred by the late-Friday announcement of Scott Bessent — a Wall Street veteran who investors expect will take the sting out of the administration’s more aggressive trade and economic policy proposals — as President-elect Donald Trump’s Treasury secretary choice.
Monday’s rally trimmed yields by more than 10 basis points across five- to 30-year maturities, gaining momentum in New York trading amid a drop in oil. The dollar slumped by the most in more than two weeks before paring the loss.
“Bessent is viewed as a potentially moderating influence on the incoming administration’s policies,” said Shaun Osborne, chief foreign-exchange strategist at Scotiabank. “Favoring gradualism on tariffs, for example.”
ImageBessent, who runs macro hedge fund Key Square Group, has called for a gradual approach to implementing trade restrictions and has appeared open to negotiating the exact size of tariffs championed by the president-elect. In an interview with the Wall Street Journal, Bessent said his priority will be to deliver on Trump’s various tax cut pledges, while also cutting spending and “maintaining the status of the dollar as the world’s reserve currency.”
November 7, 2024
SGH Insight
The collapse of Germany’s governing coalition on November 6 opens the possibility of less restrictive fiscal policy in 2025. However, over the short term it will not have a major impact on the eurozone’s largest economy.
Chancellor Olaf Scholz’s minority government aims to pass its 2025 budget before the end of the year. It is, however, uncertain whether the Social Democratic Party (SPD) and the Greens will secure enough votes in the Bundestag for passage. If the government fails in those efforts, the 2024 budget would be rolled over into 2025.
This is not uncommon in Germany. Typically, federal elections take place every four years in the fall, which means that protracted coalition negotiations can require extending the previous year’s budget. This mechanism ensures the government does not become insolvent, but it severely restricts its options to implement new investments and, therefore, boost growth in that window.
Market Validation
Chancellor Olaf Scholz’s minority government aims to pass its 2025 budget before the end of the year. It is, however, uncertain whether the Social Democratic Party (SPD) and the Greens will secure enough votes in the Bundestag for passage. If the government fails in those efforts, the 2024 budget would be rolled over into 2025.
This is not uncommon in Germany. Typically, federal elections take place every four years in the fall, which means that protracted coalition negotiations can require extending the previous year’s budget. This mechanism ensures the government does not become insolvent, but it severely restricts its options to implement new investments and, therefore, boost growth in that window.
Bloomberg 11/12/24
Germany’s new finance minister dismissed fears the political turmoil in Berlin will trigger a funding freeze, pledging the federal government will be fully capable of functioning in the weeks before February’s early election.
Joerg Kukies, appointed last week after Chancellor Olaf Scholz fired his predecessor and brought a premature end to the ruling coalition, said it’s still unclear whether Scholz’s minority government can get a supplementary budget for this year and the 2025 finance plan approved in parliament.
To do so, they’ll need the votes of opposition lawmakers. Friedrich Merz, the leader of the center-right CDU/CSU alliance, signaled earlier Tuesday the group may be willing to cooperate on this year’s budget, but Kukies said the situation remained very much in flux.
He conceded that it’s “not realistic” that the 2025 budget will get approval by the end of the year, meaning the government will be forced to resort to a temporary finance planning process to keep funds flowing.
While it’s not an ideal state of affairs and some new projects may face delays, Kukies said it’s not technically problematic and has happened multiple times before, including earlier this year after a constitutional court ruling upended the government’s finances.
The government “can and will fulfill all of its commitments,” he told delegates at a Sueddeutsche Zeitung forum in Berlin. He’s due to attend a meeting of the Bundestag’s budget committee on Wednesday.
Germany’s new finance minister dismissed fears the political turmoil in Berlin will trigger a funding freeze, pledging the federal government will be fully capable of functioning in the weeks before February’s early election.
Joerg Kukies, appointed last week after Chancellor Olaf Scholz fired his predecessor and brought a premature end to the ruling coalition, said it’s still unclear whether Scholz’s minority government can get a supplementary budget for this year and the 2025 finance plan approved in parliament.
To do so, they’ll need the votes of opposition lawmakers. Friedrich Merz, the leader of the center-right CDU/CSU alliance, signaled earlier Tuesday the group may be willing to cooperate on this year’s budget, but Kukies said the situation remained very much in flux.
He conceded that it’s “not realistic” that the 2025 budget will get approval by the end of the year, meaning the government will be forced to resort to a temporary finance planning process to keep funds flowing.
While it’s not an ideal state of affairs and some new projects may face delays, Kukies said it’s not technically problematic and has happened multiple times before, including earlier this year after a constitutional court ruling upended the government’s finances.
The government “can and will fulfill all of its commitments,” he told delegates at a Sueddeutsche Zeitung forum in Berlin. He’s due to attend a meeting of the Bundestag’s budget committee on Wednesday.
October 16, 2024
SGH Insight
Looking forward, it’s important to keep in mind that the impact of higher tariffs on inflation may take more time to be realized than market participants expect and may have impacts on growth that the Fed needs to consider when setting monetary policy. In addition, the threat of tariffs can be used as a negotiating tactic to extract trade or other policy concessions and may then not be implemented. It remains our view that actual policy will be made by more thoughtful hands, and not in haphazard fashion. As such, the realized impact of tariffs in terms of inflation and domestic economic activity would be less than implied by current campaign rhetoric.
Market Validation
FT 11/08/24
US Treasuries have recovered all the ground lost in a dramatic sell-off sparked by Donald Trump’s election victory, after Federal Reserve chair Jay Powell said it was too early to judge whether the incoming president’s policies would change the interest rate outlook.
The yield on the 10-year Treasury declined 0.05 percentage points to touch 4.29 per cent in London morning trading on Friday, almost exactly where it closed on November 5, the day before the US election result sent a “Trump trade” tearing across global financial markets.
Investors betting that Trump’s plans for tariffs and tax cuts would fuel growth and inflation piled into stocks and dumped bonds on Wednesday, betting that the path of interest rates would need to be higher than previously thought. The 10-year Treasury yield jumped to 4.48 per cent, a four-month high, as the results of the election came in.
But traders have unwound some of those bets over the subsequent two days, with the dollar also giving up part of its gains.
Some investors viewed the initial market reaction to Trump’s victory as a “knee-jerk” response to his campaign rhetoric on tariffs, questioning whether these represented an initial negotiating position and whether broad-based tariffs could get through Congress.
US Treasuries have recovered all the ground lost in a dramatic sell-off sparked by Donald Trump’s election victory, after Federal Reserve chair Jay Powell said it was too early to judge whether the incoming president’s policies would change the interest rate outlook.
The yield on the 10-year Treasury declined 0.05 percentage points to touch 4.29 per cent in London morning trading on Friday, almost exactly where it closed on November 5, the day before the US election result sent a “Trump trade” tearing across global financial markets.
Investors betting that Trump’s plans for tariffs and tax cuts would fuel growth and inflation piled into stocks and dumped bonds on Wednesday, betting that the path of interest rates would need to be higher than previously thought. The 10-year Treasury yield jumped to 4.48 per cent, a four-month high, as the results of the election came in.
But traders have unwound some of those bets over the subsequent two days, with the dollar also giving up part of its gains.
Some investors viewed the initial market reaction to Trump’s victory as a “knee-jerk” response to his campaign rhetoric on tariffs, questioning whether these represented an initial negotiating position and whether broad-based tariffs could get through Congress.
October 20, 2024
SGH Insight
The Fed is poised to cut rates 25bp at the November FOMC meeting. It’s most likely that it will message an expectation for further rate cuts but be noncommittal with regards to timing. While the Fed’s ongoing commitment to data dependency will continue to frustrate market participants as they try to price individual meetings, there is widespread support among FOMC participants for lowering policy rates toward a neutral policy setting.
We don’t think the November FOMC meeting will be a repeat of September. The shifting dynamics during the last blackout period were unusual. We think there is little appetite among FOMC participants for a repeat performance next month. Instead, they will default to the consensus established in the September SEP and cut rates 25bp.
Market Validation
We don’t think the November FOMC meeting will be a repeat of September. The shifting dynamics during the last blackout period were unusual. We think there is little appetite among FOMC participants for a repeat performance next month. Instead, they will default to the consensus established in the September SEP and cut rates 25bp.
MT Newswires 11/7/24
The Federal Reserve's monetary policy committee on Thursday reduced its benchmark lending rate by 25 basis points, following a 50-basis-point cut in September.
The Federal Open Market Committee reduced interest rates to a range of 4.50% to 4.75% from 4.75% to 5%, in line with a Bloomberg-compiled consensus.
"Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low," the FOMC said in a Thursday statement after its two-day meeting. Although inflation has made progress toward policymakers' 2% target, it remains "somewhat elevated," according to the statement.
Official data last month showed that US consumer inflation rose at a more-than-expected pace in September both sequentially and annually. Bureau of Labor Statistics data showed earlier this month that US job creation fell well short of Wall Street's estimates in October amid a Boeing (BA) strike and potential hurricane-related disruptions. The strike that lasted for more than seven weeks ended earlier this week.
"The committee judges that the risks to achieving its employment and inflation goals are roughly in balance," the FOMC said Thursday. "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 FOMC said, reiterating its remarks from September.
The Federal Reserve's monetary policy committee on Thursday reduced its benchmark lending rate by 25 basis points, following a 50-basis-point cut in September.
The Federal Open Market Committee reduced interest rates to a range of 4.50% to 4.75% from 4.75% to 5%, in line with a Bloomberg-compiled consensus.
"Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low," the FOMC said in a Thursday statement after its two-day meeting. Although inflation has made progress toward policymakers' 2% target, it remains "somewhat elevated," according to the statement.
Official data last month showed that US consumer inflation rose at a more-than-expected pace in September both sequentially and annually. Bureau of Labor Statistics data showed earlier this month that US job creation fell well short of Wall Street's estimates in October amid a Boeing (BA) strike and potential hurricane-related disruptions. The strike that lasted for more than seven weeks ended earlier this week.
"The committee judges that the risks to achieving its employment and inflation goals are roughly in balance," the FOMC said Thursday. "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 FOMC said, reiterating its remarks from September.
October 23, 2024
SGH Insight
Update on the Near-Term Rate Path
Market participants continue to run hard on the speculation of not only a Trump victory, but a Republican sweep across Congress, which in turn prompts questions from clients regarding the implications for monetary policy. A reminder of our views:
1. In the near term, a Trump victory alone is not likely to change the Fed’s policy path. The Fed is on track for rate cuts in November and, we think, December as it recalibrates policy to a more neutral stance.
Market Validation
Market participants continue to run hard on the speculation of not only a Trump victory, but a Republican sweep across Congress, which in turn prompts questions from clients regarding the implications for monetary policy. A reminder of our views:
1. In the near term, a Trump victory alone is not likely to change the Fed’s policy path. The Fed is on track for rate cuts in November and, we think, December as it recalibrates policy to a more neutral stance.
Bloomberg *POWELL: IN NEAR TERM, ELECTION WILL HAVE NO EFFECT ON POLIC
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