May 3, 2023 | Daily JAM, Morning Briefing |
Today, Federal Reserve’s Open Market Committee raised the Fed’s benchmark rate by 25 basis points to a target range of 5%- to 5.25%. The interest rate increase was expected by just about everyone. At 1:50, 10 minutes before the Fed’s announcement, the Fed Funds Futures market had priced in 88.2% odds of a 25 basis point increase. The Fed’s statement omits prior language from the March meeting that said “some additional policy firming” may be warranted. Instead, the Fed said it will take into account various factors “in determining the extent to which additional policy firming may be appropriate.” In other words, rate increases or a pause will depend on the data.
April 23, 2023 | Daily JAM, Morning Briefing, Short Term |
The Bureau of Economic Analysis is scheduled to report the Personal Consumption Expenditures index, the Federal Reserve’s preferred measure of inflation, on April 28. But because the Fed’s pre-meeting quiet period stretches from April 22 to May 4, there won’t be any comments from Fed officials to spin the data for the financial markets. That could be, well, awkward, since it will leave Wall Street more in the dark than usual about what the inflation results mean. The PCE index is expected by economists surveyed by Bloomberg to have fallen in March to a 4.1% annual rate from the 5% reported for February. If the inflation numbers come in on expectations, investors and traders will be left wondering if the drop is enough to lead the Fed to stop its interest rate increases after a 25 basis point boost at the May 3 meeting.
April 12, 2023 | Daily JAM, Long Term |
Minutes from the Federal Reserve’s March 21-22 meeting show the central bank’s staff projecting a mild recession later in 2023 with a recovery from 2024 to 2025. A key reason cited by the staff: stress in the banking sector.
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 28, 2023 | Daily JAM, Morning Briefing |
Now it’s not just the Cleveland Fed’s NowCast that’s pointing at problems in Friday’s PCE (Personal Consumption Expenditures) index inflation report. Economists surveyed by Bloomberg project that the core PCE index–that is excluding food and fuel prices–climbed 0.4% in March from February. Year over year, the core PCE index is projected to be up 4.7% with the all-items rate up 5.1%.
March 25, 2023 | Daily JAM, Short Term |
Look for another inflation report this week. This time–on March 31–it’s the Federal Reserve’s favorite inflation model, the Personal Consumption Expenditure (PCE) index. And, there’s potential trouble in this report–if projections from the Cleveland Federal Reserve Bank’s Inflation NowCast are accurate.
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 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 |
U.S. prices at the wholesale level, the producer-price index, fell in February from January, the Bureau of Labor Statistics reported this morning. The producer-price index fell 0.1% in February from January after a 0.3% month-to-month increase in January. Will that be enough so that the Fed has an argument for NOT raising interest rates next week?
March 15, 2023 | Daily JAM, Videos |
Today’s topic is The Fed’s Impending Disaster. The CPI inflation numbers for February looked good from an annual perspective–headline at 6% and core at 5.5%–but if you look month to month, inflation ticked up slightly. In the big picture, inflation is lower, but we’re not seeing it fall at the speed the Fed would hope. The Fed wants to get inflation down to 2% and we’re currently around 5.5% core inflation–a long way off. If you look at those numbers alone, you’d expect the Fed to continue raising their rates. This is what the market was expecting just last week, projecting a 25-50 basis point increase for the March 22 meeting. The thing that puts the Fed between a rock and hard place is the Silicon Valley Bank collapse and additional banking stressors that could lead to more disasters inside the Treasury market. In February the FDIC said that insured banks had about $620 billion in undeclared losses. With $23 trillion in the banking system, $620 billion is less than 10% overall, but if it’s concentrated in certain areas, it could cause more blow-ups. We don’t know if we’ll see any big Wall Street banks go down, like Lehman Brothers back in 2008, but I am watching Credit Suisse closely, especially after the big hit to its share price this morning, March 15. Essentially, the rapid hikes in interest rates have put strains on the banking industry and the Fed will have to decide whether they will continue raising rates to fight inflation, or stop in favor of supporting banks while inflation is still high at 5.5%.
March 13, 2023 | Daily JAM, Short Term |
Tomorrow’s CPI inflation report for February will show whether the Federal Reserve faces a very difficult task in bringing down inflation without crashing the economy (and/or the banking system) or whether the job is simply impossible. Right now economists are pointing toward impossible. The annual inflation rate is likely to have come down in February from January but the month-to-month trend is likely to be flat. Which means that inflation has stopped declining with the annual rate well above the Fed’s 2% target rate.
