The Administration's shift towards fixing trade imbalances by demanding countries to reinvest their foreign reserves into the U.S. can boost U.S. growth, but also creates upside risk to yields. Instead of requesting a currency adjustment, Trump has been asking a number of trade surplus countries to invest hundreds of billions of dollars into the U.S. These sums are to be financed out their sizable foreign reserves, which were in part accumulated from decades of trade […]
The Fed's embarkation on a series of insurance cuts is more than priced into the market, but the economic impact may be limited. Longer dated yields have remained range bound despite anticipated cuts with mortgage rates appearing to be floored at around 6%. That may not be enough to stimulate demand as homebuilders have suggested they would correspondingly reduce buyer incentives to protect profit margins. The level of mortgage rates is also not low enough […]
The market is set up for a hawkish disappointment as the September Fed meeting is unlikely to validate the aggressive number of cuts in market pricing. Despite disappointing employment numbers, the economic data is still broadly evolving in line with median FOMC projections. The June dot-plot guided towards cautious and measured cuts over the coming months as inflation is projected to only gradually glide towards target. In contrast, the market is pricing a series of […]
The significant rise in global bond yields in recent months is driven by three intertwined stories that can each shed light on the trajectory of the long yields. First, the Dutch pension fund system is reducing its need for duration by transitioning from a defined benefit to a defined contribution system. Second, fiscal deficit concerns are pushing up borrowing costs in countries like the U.K. and France. And lastly, inflation remains persistently high and may […]
President Trump has a good chance of taking over the Federal Reserve and fundamentally altering the economic landscape through the Fed's powers over regulation, short rates, and balance sheet. Trump could gain a majority over the Board if his termination of Governor Cook is successful or if Chair Powell follows tradition and resigns from the Board at the end of his chairmanship. The Board has authority over banking regulations, some monetary policy tools, and the […]
The economy is slowing even as fiscal spending remains large and asset prices high, so we may be at an exhaustion point in the post-pandemic economic model. Growth skyrocketed in recent years as fiscal spending surged, asset prices jumped, and the population grew by several million. This year population growth declined, and the other two engines seem to be experiencing diminishing returns. Fiscal spending remains historically high, but it is not increasing. Equity prices continue […]
