Joseph WangModify

A removal of the Fed's ability to pay interest on reserves would fundamentally change the structure of dollar money markets and put downward pressure across the dollar interest rate curve. The Fed has used IOR as a policy tool since 2011, but Congressional pressure is building to revoke the tool to reduce the fiscal deficit. The Fed is on track to pay commercial banks over $120b this year in interest even when the fiscal deficit […]

The sudden surge in oil prices right after the fading tariff shock should not impact the prospect of rate cuts. Recent data had been moving unequivocally towards rate cuts as both weakness in the labor market and the pace of disinflation picked up. Inflation expectations were also moving back towards pre-Liberation day levels and giving the Fed the option to "look through" tariff impacts. However, conflict in the Middle East could present a durable oil […]

The Administration is seeking to boost growth by increasing the capacity of the banking sector to lend, but their strategy may not be very effective. The Fed has signaled upcoming revisions across bank capital regulations, and recently released Wells Fargo from a seven year asset cap. The asset cap limited the capacity of the nation's fourth largest bank to lend, and the post-GFC regulatory framework has significantly increased the business costs of large banks. But […]

The significant amount of issuance in the coming years will be a challenge to the financial system and place persistent upward pressure on yields. The pace of issuance will be at least $2t a year and it is not clear which investor class will be most capable of absorbing the supply. Since 2020, the major buyers of cash Treasuries have been the Federal Reserve, foreigners, hedge funds and banks. A likely increase in reluctance among […]

The market’s waning appetite for Treasuries suggests the U.S. is on a path that begins with rising yields and ultimately ends in a painful period of austerity. A persistent 7% fiscal deficit is never sustainable and may finally be reaching its limit. The Big Beautiful Bill shatters any illusion of fiscal restraint and unleashes a surge in Treasury supply that is almost certainly underestimated. The weakening dollar accompanying rising yields is a classic sign of […]

Trump's upcoming spending bill would usually be positive for equities, but recent cracks in U.S. exceptionalism suggest that it could instead have the opposite impact. Large fiscal stimulus is sometimes positive for equities as in the recent case of German rearmament, but can also lead to market declines as seen in the 2022 U.K. budget panic. While aspiring towards deficit reduction, Trump's upcoming tax legislation is expected to significantly expand the fiscal deficit in a […]