The sooner the Fed gets to where it is going, the sooner it may pause and observe. In addition, Treasury yields remain negative across the yield curve which is not long-term healthy for the economy. The Effective Fed Funds rate range stands at 4.25-4.50%. If the Fed believes that the upper bound should sit at … Continue reading Why The Fed Should Hike By 50 BPS
Tag: Fed Chair Powell
Fed Projections: Too Optimistic
The Fed's current projections are more realistic than those made in September but continue to reflect a degree of wishful thinking. Unemployment Rate & Real GDP. It is difficult for me to believe that Real GDP Growth will be flat in 2023 at 0.5% as the Unemployment Rate increases from 3.7% to 4.6% over the … Continue reading Fed Projections: Too Optimistic
Fed Funds Will Go Higher. QT Will Continue.
The Fed's FOMC statement reads that the Central Bank anticipates that its Fed Funds Rate will need to go higher in order to return CPI to 2%. The Fed plans to continue with QT in-line with its previously communicated path ($60 billion per month cap on Treasuries, $35 billion per month cap on Agency securities). … Continue reading Fed Funds Will Go Higher. QT Will Continue.
The Fed Can’t Afford To Be Dovish
Our view is that it will be difficult for the Fed to take a dovish position with CPI above 7% given a CPI target of 2%. Further, the entire Treasury yield curve remains in negative territory. Recall that Powell wants to see positive real rates across the yield curve as he said in his September … Continue reading The Fed Can’t Afford To Be Dovish
The Fed’s Balance Sheet Reduction (QT) Update
The Fed reduced its Treasury and Government Agency security holdings by $32.9 billion over the week ended November 30th. The Fed has reduced its balance sheet holdings by $79.7 billion over the last 4 weeks. Fed Balance Sheet – Treasuries: The Fed’s Treasury security holdings were $19.6 billion lower over the last week and $60.0 … Continue reading The Fed’s Balance Sheet Reduction (QT) Update
The Fed Will Raise By 100 Basis Points In July
Our view is that the Fed will raise the Fed Funds Rate by 100 basis points when it holds its FOMC meeting on July 26th and 27th. Today's CPI print of 9.1% creates significant political and economic pressure for the Fed to become increasingly aggressive in its approach to taming inflation. The Fed is behind … Continue reading The Fed Will Raise By 100 Basis Points In July
It Is Official. We Are In A Recession.
The Atlanta Fed's GDPNow Q2 Real GDP estimate was -2.1% as of July 1st. This marks the second consecutive negative Real GDP quarter which means we are officially in a recession. A recession in 2022 was an easy call for us to make as there was essentially zero probability of the U.S. economy growing in … Continue reading It Is Official. We Are In A Recession.
Will Powell Surprise To The Upside?
The Fed's FOMC meeting will take place this week on June 14th and 15th. Fed Chair Powell has lost control of the inflation narrative. The Fed needs to act boldly to capture control of the inflation narrative. Price inflation was obviously never going to be transitory given the Fed grew the money supply as measured … Continue reading Will Powell Surprise To The Upside?
Will He Or Won’t He?
Will Fed Chair Powell increase the Fed Funds Rate for three consecutive meetings? We say look to the credit markets. Consensus amongst investors seems to be that the Fed will execute two consecutive rate hikes but may pause before executing a third. Our view is that Fed Chair Powell will execute Fed Funds hikes at … Continue reading Will He Or Won’t He?
Jerome Powell Will Talk Tough This Summer
Powell was confirmed for a second term as Fed Chair on May 12th. His nomination was held up for months in the Senate. Powell's confirmation will provide him with temporary courage - enough to talk in a hawkish manner, enough to take the Fed Funds Rate to 2% by summer's end - but not enough … Continue reading Jerome Powell Will Talk Tough This Summer
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