Change of Narrative

Change of Narrative

FED Changes Narrative?

A number of FED speakers were on the wires this week with a mixture of rhetoric, but a clear change of narrative.

New York Fed President John Williams says monetary policy is “the most restrictive in 25 years” Nevertheless, “I expect it will be appropriate to maintain a restrictive stance for quite some time”

Federal Reserve Board Governor Christopher Waller said he was "increasingly confident" that policy is currently well positioned to slow the economy and get inflation back to 2% target.

Waller added that should data show disinflation continuing for several more months, the Fed "could then start lowering the policy rate just because inflation's lower."

Other Fed officials chimed with Waller. New York Fed chief John Williams said long-term inflation expectations were anchored, reassuring and "remarkably stable".?

Chicago Fed President Austan Goolsbee was more colourful in insisting there were risks in keeping rates too high for too long - due to the lags in policy taking effect.?

"Anybody who cooks a turkey knows that you got to pull it out of the oven before it's to the point where you want it to be, because it's going to have residual heat."

Only Fed governor Michelle Bowman seemed to hold up the side of the hawks, saying she still expects one more rate rise.

Chair Powell tried to push back against market pricing of notable rate cuts next year noting “it would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease.” He added: “We are prepared to tighten policy further if it becomes appropriate to do so.”

However from January, the voting members of the FED change

In come?

  • Barkin
  • Mester (through June)
  • Bostic
  • Daly

Out go

  • Goolsbee
  • Harkin
  • Logan
  • Kashkari

Fed Chair Jerome Powell speaks on economy and entrepreneurship at Spelman College —1st Dec

Watch Powell at his most relaxed, without awkward questions from seasoned financial journalists, give a forthright and honest view of the US economy and at 27 minutes reiterating his view on unsustainable fiscal debt, without seeming to do so.

The FED needs to own the narrative otherwise they are surplus to requirements

Inflation

The change of narrative reflects the improvement in inflation , whilst GDP is strong and the US? pretty much in full employment.

There was a sloppy 7 year auction, repeating the theme that investors are cautious about buying long term debt.

US GDP Q3 2023
US GDP Q3 2023
US PCE October 2023
US PCE October 2023v

Steph Pomboy on GDP /GDI [X]

Real gross domestic income (GDI) is a measure of the incomes earned and the costs incurred in the production of gross domestic product. It's another way of measuring U.S. economic activity. BEA also publishes the average of real GDP and real GDI.

US GDP vs GDI
US GDP vs GDI

10 Year US Gov Bond Yields Driving Markets

US 10 Year Yield Daily
US 10 Year Yield Daily

Most markets are trading the 10 year bond, as inflation dropping adds validation to FED cutting rates and dollar lower.

UST 10 year yield looks to drop to 4.1%


In The Background

USD Futures Monthly DXY
USD Futures Monthly DXY

USD monthly since 1986. "Printing USD" since 2008 has pushed the USD higher, not lower.

BILL ACKMAN BETS FED WILL CUT RATES AS SOON AS FIRST QUARTER [Bloomberg]

What we know about China’s new pneumonia outbreak so far [ News.com.au ]

Gold just shy of all time high?

Gold / USD Daily
Gold / USD Daily

Israel plans for ‘long war’ and aims to kill top three Hamas leaders [FT]

Banking System

What’s going on in banks? CEOs selling shares. Rumours of liquidity hoarding. BPFP → record highs. RRP → 0

Financial contagion warning as HSBC is told to brace for ‘catastrophic’ £6.3billion hit [Daily Express]

THE BANK OF JAPAN'S UNREALIZED LOSSES ON ITS JAPANESE GOVERNMENT BOND HOLDINGS SWELLED TO $71.2 BILLION AT THE END OF SEPTEMBER [Nikkei]

China's Quasi-QE Isn't Enough To End Real Estate Crisis [Zerohedge]


In Case You Missed It

European CPI Plummets

EU CPI November 2023
EU CPI November 2023

German recession driving CPI lower

Germany CPI Nov 2023
Germany CPI Nov 2023

While in Chicago, purchase managers index makes a huge jump

Chicago PMI November 2023
Chicago PMI November 2023

Same for the Institute of Supply Management Survey, nationwide

ISM Manufacturing Prices November 2023
ISM Manufacturing Prices November 2023

Australia

Aussie reaching key level

AUD / USD Daily
AUD / USD Daily

RBA meeting next week looks to be interesting.

Bullock says households are coping as Lowe issues warning [AFR]

Reserve Bank of Australia governor Michele Bullock says household finances are holding up despite the “political noise” around 13 interest rate rises, warning it is “very uncertain” inflation will return to target in the next two years.

“Despite that noise, households and businesses in Australia are actually in a pretty good position. Their balance sheets are pretty good,” Ms Bullock said on Tuesday at a high-powered gathering of central bankers in Hong Kong, which included her predecessor, Philip Lowe.

“We’ve been surprised a little bit on the strength of activity. It’s held up a little better than we thought. That’s meant that services price inflation has held up a bit more. So what we’re observing is a bit more domestic price pressures than we’d expected.”

In his first public remarks since leaving the RBA in September, Dr Lowe said he was worried central banks may not have increased interest rates high enough, and warned the RBA will suffer a credibility hit if it failed to hit its inflation target by 2025.

“I hope that most central banks have done enough [on interest rates] but I’m worried that they haven’t, and it’s doubly important that we pass this first inflation test,” Dr Lowe said.

TRADERS ARE BETTING INTEREST CUTS RATES TO COME

Australia Retail Sales October 2023
Australia Retail Sales October 2023

Bullock hawkishness not supported by lower than expected CPI. CPI lower than expected but still very elevated.

Australia CPI YoY October 2023
Australia CPI YoY October 2023

Labor told not to stack RBA board [AFR]

Feds / States squabbling over money [AFR]

Albanese faces revolt from states over $5b GST ‘disaster’ [AFR]


This Week's Important Economic Indicators [London time]

This Week's Important Economic Indicators [London time]
This Week's Important Economic Indicators [London time]




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