Podcast
Questions and Answers
What could cause overall inflation according to the text?
What could cause overall inflation according to the text?
How does the current core PCE compare to the Fed's previous expectations?
How does the current core PCE compare to the Fed's previous expectations?
What did Powell examine when considering rates according to the text?
What did Powell examine when considering rates according to the text?
What was the reaction of the market after Powell's statement about rate cuts?
What was the reaction of the market after Powell's statement about rate cuts?
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What led to fears in the market regarding New York Community Bank?
What led to fears in the market regarding New York Community Bank?
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What factor does Powell take into account when assessing the need for rate cuts?
What factor does Powell take into account when assessing the need for rate cuts?
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How did bonds react after Powell's statement?
How did bonds react after Powell's statement?
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What made Wednesday a risk-off day in the market?
What made Wednesday a risk-off day in the market?
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What was the Fed funds futures curve predicting on Wednesday, as per the text?
What was the Fed funds futures curve predicting on Wednesday, as per the text?
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What is one of the reasons offered for not making aggressive cuts immediately?
What is one of the reasons offered for not making aggressive cuts immediately?
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Study Notes
Interest Rates and the Euro
- Euro has depreciated ~2.7% against the USD since the beginning of the year due to anticipated wider interest-rate differentials favoring the US.
Federal Reserve Commentary
- Powell emphasized the benefits of America's role in defending democracy on economic and security arrangements.
- Questions arise whether the Fed funds rate should be near the neutral rate if the economy is balanced, yet financial conditions do not hinder job creation.
- Speculation exists about potential rate cuts by the Fed to assist the Biden administration.
Fed Market Dynamics
- Concerns noted that a significant stock market downturn could negatively impact Biden’s standing; Fed might allow market growth accordingly.
- Risks of politicization of the Fed under a Trump administration could lead to tax cuts and increased spending, which may displease bond markets.
Senior Lending Officers Survey (SLOOS)
- SLOOS is a critical indicator linked to recession predictions; historically, lending tightening precedes rising unemployment.
- Currently, unemployment remains low, but American companies are increasingly borrowing from non-banks, benefiting from lower interest expenses.
- Majority of bankers tightening lending standards shows a declining trend, while demand for commercial and industrial loans is decreasing at a slower pace.
Fed Funds Futures Market Insights
- Investors often misjudge the Fed funds futures market; the Atlanta Fed and Cleveland Fed provide tools to assess appropriate funds rates.
- Current calculations suggest a Fed funds rate of 4.8%, predicted to drop to 3.9% by year-end.
- Raises questions about the effect of existing policies on economic growth amidst a 3.3% GDP increase.
Employment Report Highlights
- January saw an addition of 353K jobs, the strongest growth in a year—almost doubling expectations.
- Averaged 289K jobs added monthly over the last three months, marking the fastest pace since Q1 2023.
- Over the past year, 2.9 million jobs were added; nearly 66% of private-sector industries either grew or maintained payroll levels.
- December job additions were revised from 216K to 333K.
Wage and Unemployment Trends
- Wages rose 4.5% YoY, reflecting a 0.6% MoM increase, primarily due to reduced hours worked, likely weather-related.
- Unemployment rate has stabilized at 3.7%, with a labor force growth of 124K and unchanged participation at 62.5%.
Household vs. Employer Surveys
- Household surveys indicate slower employment gains compared to employer surveys over the past year, revealing discrepancies in reported employment growth.
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Description
Test your knowledge on US interest rates, the Federal Reserve, and statements made by Chairman Powell. See how well you understand the impact of interest-rate differentials on currencies like the euro and USD.
