April 12, 2023 | Daily JAM, Morning Briefing |
All items inflation as measured by the Consumer Price Index rose by just 0.1% in March, the Bureau of Labor Statistics reported today. That is a big drop from the 0.4% increase in February. The year-over-year all-items inflation rate fell to 5.0% in March. from 6.0% in February. Inflation is coming down and it’s coming down pretty fast, right? Well, no. The core inflation rate, which excludes energy and food prices on the theory that they are too volatile to count as “real” inflation, rose 0.4% in March after climbing 0.5% in February. The year-over-year core inflation rate rose slightly to 5.6%. So inflation is proving to be very sticky.
April 1, 2023 | Daily JAM |
Friday’s PCE (Personal Consumption Expenditures) index, the Federal Reserve’s preferred inflation, measure gave believers in Goldilocks just enough to keep the fairy tale alive. The all-items index rose 0.3% in February. That works out to a 5% annual rate. The month-to-month increase was less than expected by economists surveyed by Bloomberg–who were looking for 0.4%. The core index, which excludes food and energy prices, also rose by 0.3% month to month. Again less than expected. That put the annual core inflation rate at 4.6%.
March 30, 2023 | Daily JAM, Morning Briefing, Short Term |
Today the Federal Reserve mounted a full-court press (Hey, it is March Madness time, right?) on the need for at least one more interest rate increase before any pause. And financial markets were listening.
March 25, 2023 | Daily JAM, Mid Term, Morning Briefing |
Goldilocks is just about the only thing keeping the current stock market afloat in the face of a storm of worry from a banking crisis, to stubbornly high inflation, and signs of a cooling economy. The Goldilocks story says, Don’t worry about all that. The Federal Reserve is about to pivot on interest rates. At its May 3 meeting, the Federal Reserve Open Market Committee might raise interest rates by 25 basis points but that will be the last interest rate increase. And then the Fed will move to start cutting interest rates in the second half of the year with financial markets pricing in as much as 200 basis points of cuts by the end of 2024. And all this will happen, too, without a recession, as the Fed engineers a successful soft landing of the economy and a significant slowdown in inflation.
If you believe that, you should be buying stocks. I don’t believe it. And more importantly, the bond market doesn’t believe it.
March 23, 2023 | Daily JAM, Morning Briefing |
I argued in my YouTube video on Tuesday that this was a market without a trend. So far that seems about right.
March 22, 2023 | Daily JAM, Short Term |
Not a whole lot of news out of today’s breathlessly awaited meeting of the Federal Reserve’s Open Market Committee. The committee raised its short-term benchmark rate by 25 basis points to a range of 4.75% to 5%. That move had about 80% odds in its favor going into the meeting. The Dot Plot projections kept the interest rate forecast at 5.1% for the end of 2023. That was unchanged from the December Dot Pot projections.
March 22, 2023 | Daily JAM, Morning Briefing |
Ahead of the Federal Reserve’s decision on interest rates today, banks look like they’ve cut back on lending as a result of the Silicon Valley Bank/Signature Bank/ etc. crisis. And economists are reminding us all, that a reduction in bank lending because of fear of a banking crisis is just as much a tightening of the money supply as higher interest rates from the Fed.
March 21, 2023 | Daily JAM, Morning Briefing |
The CME FedWatch Tool, which calculates the odds of a Fed move on interest rates by looking at prices in the Fed Funds Futures market, puts the odds of a 25 basis point interest rate increase from the U.S. central bank tomorrow at 86.4%. That’s up from 73.8% on March 20.
March 18, 2023 | Daily JAM, Mid Term |
The Federal Reserve will meet on Wednesday, March 22 to set interest rates. There are three things to watch from that meeting. First, whether the Fed will raise interest rates or not and by 25 basis points, 50 basis points, or not at all. Second, we will get the first update of the Dot Plot since the December 14 meeting that projects what Fed officials think interest rates, inflation, unemployment, and GDP growth will be at the end of 2023 and 2024. Third, the financial market reaction to the news out of the meeting will tell us if the Fed (as I’d argue) has lost control of the interest rate narrative and that the bond market is now calling the direction and pace of changes in interest rates.
March 16, 2023 | Daily JAM, Morning Briefing, Short Term |
The European Central Bank raised its benchmark short-term interest rate by another 50 basis points today. The bank said that the European banking system has strong capital and liquidity positions in spite of problems at Credit Suisse that led that bank to borrow $54 billion from the ECB yesterday. Fighting inflation remains the bank’s top priority.
March 15, 2023 | Daily JAM, Morning Briefing, Short Term |
Shares of Credit Suisse (CS) fell this morning–if a 31% drop at the worst moment can be called “falling”–after the bank’s biggest shareholder said it would NOT put more money into the challenged bank. As of noon New York time, shares of Credit Suisse were down 24.1%. The bank’s bonds fell to levels that signal deep financial distress, with securities due in 2026 dropping 17.75 cents to 70 cents on the dollar in New York. That puts their yield at about 20 percentage points above U.S. Treasuries.
March 14, 2023 | Daily JAM, Morning Briefing |
February core inflation, measured by the Consumer Price Index, climbed from January at a faster month-to-month pace, according to this morning’s report from the Bureau of Labor Statistics. Core inflation, which excludes theoretically more volatile food and energy prices, rose at a 0.50% month-to-month rate in the month after climbing at a 0.40% month-to-month rate in January. That put core inflation on a 5.5% annual pace. This wasn’t what the Federal Reserve needed to hear as it wrestles with the problem of what to do to contain inflation still running at well above the central bank’s 2% target (and which threatens to edge higher again) at a time when the banking system is showing systemic stress brought on by the Fed’s aggressive interest rate increases. Here are the Fed’s choices.
