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Although the Federal Reserve is still expected to begin cutting rates before its global peers – and to move more aggressively when it does – the “pivot” horizon has moved out in recent months. Markets are pushing “pivot” expectations out. Overnight index swap-implied policy rates, %
Longer-term rate expectations remain remarkably well-anchored. Midpoint of target range for the Federal Funds Rate, Statement of Economic Projections % March 2023 June 2023
Demand expectations are falling as evidence of a slowdown in the global industrial cycle accumulates – with China leading the way. Oil prices are dropping. Crude oil benchmarks, USD per barrel New York Federal Reserve Consumer Expectations Survey: “Inflation expectations declined to 4.1 percent at the one-year-ahead horizon, its lowest reading since May 2021, but increased slightly to 3.0 percent and 2.7 percent at the three- and five-year-ahead horizons”. Consumer inflation expectations are coming down. Google search volume for “inflation” and median one-year ahead expected inflation rate, % Inflation breakevens – which measure the difference between Treasury yields and Treasury...
Exhibit 1 Recession fears are subsiding. Bloomberg US Economic Surprise Index Exhibit 2 Rate cut expectations are moving into 2024. Treasury Yields, % Exhibit 3 A long-expected growth rotation is firmly underway. Purchasing Manager Indices Exhibit 4 Saudi Arabia is working to bring oil markets into “balance” around $80. Production volumes, millions barrels per day Exhibit 5 Oil shorts aren’t “ouching” yet. Global benchmark prices, USD per barrel Exhibit 6 Margins of safety are widening. OPEC spare capacity, million barrels a day Exhibit 7 But observers expect further tightness. Consensus forecasts vs. implied forward prices, USD per barrel Exhibit 8...
Exhibit 1 US household spending remains remarkably strong. Personal consumption expenditures, nominal and real (chained 2012 dollars), billions USD Exhibit 2 Labour market conditions are tight. Initial unemployment claims, thousands Exhibit 3 Core inflation is subsiding too slowly. All Items, Core (All Items Excluding Food and Energy), Personal Consumption Expenditures Index, Annual Change, %, SA Exhibit 4 And financial conditions are stabilizing. Bloomberg Financial Conditions Index Exhibit 5 Rate expectations are climbing. Target rate probabilities by meeting. Exhibit 6 Across the front end. Futures-implied policy rate by meeting date, % Exhibit 7 And the dollar is regaining ground. DXY Dollar...