We are adjusting our call. This was a strong jobs report, and it makes clear that there’s more work to be done. However, the tightening in financial conditions we’ve seen—before and after this report—constitutes a lot of new restraint. The market has raised the probability that there will be another rate hike to about 50%, and it’s raised the […]
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Policy Prism: Currency of Choice
As war in Europe continues, some U.S. competitors have ramped up rhetoric about alternative currency regimes that do not center around the dollar. New data continue to pour cold water on this hope. We recently wrote a commentary on de-dollarizaion for the original thematic analysis. To read more of this piece or our de-dollarization analysis, […]
Yesterday BEA released revised quarterly NIPA data through Q2, with the 2023 comprehensive update of the national economic accounts affecting the data through Q1. Today BEA released the monthly data underlying the quarterly data released yesterday (i.e. the monthly data through June corresponding to the quarterly data through Q2) as well as the data for […]
I have been writing, indeed many times, about the challenge of allocating responsibility for the sharp and persistent increase in inflation to supply- and demand-driven forces. Their relative roles are relevant to—indeed, effectively determine—what monetary policy can and cannot achieve and, therefore, are relevant to what the appropriate monetary policy response is. Here I focus […]
The “hawkishness” of successive hawkish holds is subject to diminishing returns. But we see virtually no chance of a September hike. That’s the overwhelming consensus on the FOMC and all will agree, or at least not object, to that decision. In any case, the markets insist. Most on the Committee see the rate hikes as over […]
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Inflation Monitor: February PCE
Today’s personal income and outlays report confirmed that inflation remained very high in February, of course. Core PCE prices increased 0.35% in February, which corresponds to an annualized rate of over 4%. But that still represents a decent moderation compared to the previous four months, each of which saw an increase of 0.5%. It was […]
Situation. Powell previewed the reduction of the balance sheet with passive runoff, using caps that phase in. But it is unclear if the FOMC will be able to shrink it in time. A downturn that necessitates zero funds rate and QE could hit before the three-year mark; the risk of that outcome grows with the […]
As we wrote last week, despite there being some significant surprises in the March SEP, we still felt comfortable with our call of seven 25-basis-point hikes this year. We adjusted our call only slightly, by adding a hike in 2023 (three instead of two). The median projected funds rate path was higher than we anticipated, […]
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Inflation Monitor: February CPI
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The outlook just keeps getting more uncertain. Powell came to his first monetary policy testimony of the year last week with a plan to deliver a message, which he laid out very clearly early in the Q&A portion of the first day’s hearing. For the immediate period ahead, the FOMC’s intention is “to avoid adding […]