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Subtly Lowering the Bar
MIG sensed a subtle change in July’s FOMC statement. The Committee adopted slightly different language around inflation. They seemed to caveat that measures of core and headline inflation were falling “on a 12-month basisâ€. At the time, we thought they might be indicating a distinction between a tumbling annual rate and potentially more perky monthly changes. If so, it would effectively lower the bar for a December rate hike. That is, so long as the monthly changes were positive, the Fed ...
What Will Drive US Rates From Here?
​ A stellar July jobs report will keep the FOMC on track to normalize policy. A September launch to the Fed’s balance sheet reduction program seems all but certain. Though the prospects for a December rate hike are much less clear. However, the biggest news of the week was not Friday’s jobs number! It was an obscure announcement by Treasury earlier in the week that got much less attention. This will drive the yield curve and LT rates for the next few months. The US Treasury plans to ram...
The Fed's New Conundrum
​The July FOMC proved to be unremarkable as the Fed doubled down on plans to launch its bond runofff program in September. Looking forward, a rate hike in December remains an open question given the divergent views on the Committee around both inflation and the need for further rate hikes.From our perspective, markets may be underestimating the Fed’s determination to raise rates later this year. One source of this resolve is the Fed’s “New Conundrumâ€. That is, the relentless easing o...
Caution: Steeper Yield Curve Ahead
This week was once again marked by sluggish economic data. The FOMC remains watchful, but not worried, about slowing economic momentum. The Fed seems willing to look past recent weak data as long as job creation remains strong and labor markets remain tight. The spat of soft data has caused markets to adjust downward sharply their expectations for the economy and policy. MIG believes there are now compelling reasons to expect the yield curve to steepen over coming months:Growing prospects for up...
FOMC Doubles Down Despite Soft Data
At its June meeting, the FOMC doubled down on its plans to normalize policy despite recent soft data. In our view, there were two key takeaways from this meeting: By lowering their inflation forecast yet leaving the path of policy unchanged, the Fed essentially lowered the bar for a third rate hike and launching a passive bond runoff program in 2017​ The Fed remains highly dependent on the rosy employment picture and tight labor markets as a rationale for its preferred policy path
Fed Nearing a Critical Inflection Point
​December’s FOMC meeting will be a critical inflection point for Fed policy as they shift from “near-term hawks†to “long-term dovesâ€.MIG maintains our longstanding call for an “Apologetic Increase†in December – a 25bps increase in the policy rate that comes with explicit dovish language about subsequent rate hikes. Fed speakers have accentuated the positive developments in labor markets and the recent upward move of inflation. Markets have responded accordingly to this by inc...
Fed Nearing an Inflection Point
December’s FOMC meeting will be a critical inflection point for Fed policy as they shift from “near-term hawks†to “long-term dovesâ€. MIG maintains our longstanding call for an “Apologetic Increase†in December – a 25bps increase in the policy rate along with explicit dovish language about subsequent rate hikes. Fed speakers have accentuated the positive developments in labor markets and the recent upward move of inflation. Markets have responded accordingly to this by increasing...
Fed Nearing an Inflection Point
December’s FOMC meeting will be a critical inflection point for Fed policy as they shift from “near-term hawks†to “long-term dovesâ€. MIG maintains our longstanding call for an “Apologetic Increase†in December – a 25bps increase in the policy rate along with explicit dovish language about subsequent rate hikes. Fed speakers have accentuated the positive developments in labor markets and the recent upward move of inflation. Markets have responded accordingly to this by increasing...
Fed Nearing an Inflection Point
December’s FOMC meeting will be a critical inflection point for Fed policy as they shift from “near-term hawks†to “long-term dovesâ€. MIG maintains our longstanding call for an “Apologetic Increase†in December – a 25bps increase in the policy rate along with explicit dovish language about subsequent rate hikes. Fed speakers have accentuated the positive developments in labor markets and the recent upward move of inflation. Markets have responded accordingly to this by increasing...
What an FOMC "Grand Compromise" May Look Like
​This week’s solid PMI and jobs data indicate the US economy has rebounded well from its late summer swoon and our longstanding call for a December rate hike remains firmly on track.The FOMC remains deeply divided, however, and several doves are likely to oppose any rate hikes at all. Fed Chair Yellen would strongly prefer to raise rates with a near-unanimous consensus. In order to achieve this, she will have to construct a “Grand Compromise†to get as many Fed doves on board as possible...