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27 May. 2016 June, July, or September: Evaluating the Fed's Options (My Publications)

After a busy week of data, and a holiday weekend ahead, it's worth stepping back a bit and evaluating the arguments over the timing of the next Fed hike. The first question, though, is whether the data will support action, on the Fed's own terms. The April FOMC minutes said: "Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee's 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June".

26 Oct. 2015 What Has to Happen for the Fed to Hike in December? (My Publications)

A rate hike from the Fed this week would be a gigantic surprise, and Yellen Fed has not, so far, been in the surprise business. It would be more accurate to describe the Fed's modus operandi as one of extreme caution, and raising rates when the fed funds future puts the odds of action at close to zero just does not fit the bill.

28 Apr. 2016 Global Risks Gone, but the Fed is Still Relaxed About Inflation Risk (My Publications)

The disappearance from the FOMC statement of any reference to global risks, which first appeared back in September, was both surprising and, in the context of this cautious Fed, quite bold. After all, one bad month in global markets or a reversal of the jump in the latest Chinese PMI surveys presumably would force the Fed quickly to reinstate the global get-out clause. So, why drop it now?

16 Dec. 2015 LatAm Central Banks Will Tighten in Response to the Fed? (My Publications)

We look for the Fed to increase rates today by 25bp to a range of 0.25%-to-0.50%. The FOMC will likely say that policy remains very accommodative and that rate hikes will be slow. Unfortunately, this will provide only temporary relief to LatAm. According to our Chief Economist, Ian Shepherdson, faster wage gains next year in the U.S. will disrupt the Fed's intention to move gradually. If wages accelerate as quickly as we expect, the Fed will need to raise rates more rapidly than it currently expects, which is also faster than markets anticipate. That, in turn, will put EM markets and currencies under further pressure.

28 August. 2015 Fed Delay Until December Will Be Positive For LatAm Markets - Just (My Publications)

Multiple factors have shaken LatAm financial markets this week. China's market turmoil, commodity price oscillations, currency volatility, and political mayhem in every corner of the region, have all conspired against markets. But market chaos has also driven some central banks to rethink their monetary policy plans. For EM, in particular for LatAm, the stance of the Federal Reserve is key, given the region's close ties to the U.S., and the dollar.

16 June 2017 LatAm Markets will Continue to Cope Well with Fed Tightening (My Publications)

LatAm markets reacted well to the U.S. Fed's decision to increase the funds rate by 25bp, to 1-to-1¼%, on Wednesday. Currencies moved only slightly after the decision and asset markets were relatively stable. Yesterday, some currencies retreated marginally as investors digested the relatively hawkish message from the Fed and Chair Yellen's press conference.

26 Oct. 2015 MPC Can't Wait too Long After the U.S. Fed Raises Rates (My Publications)

Markets currently judge that U.K. interest rates will rise about six months after the first Fed hike. But the Bank of England seldom lagged this far behind in the past. Admittedly, the slowdown in the domestic economy that we expect will require the Monetary Policy Committee to be cautious. But wage and exchange rate pressures are likely to mean six months is the maximum period the MPC can wait before following the Fed's lead.

25 Apr. 2016 Growth Will Rebound in Q2, But Brexit Fears Will Constrain the Fed (My Publications)

We are revising our forecast for Fed action this year, taking out two of the four hikes we had previously expected. We now look for the Fed to hike by 25bp in September and December, so the funds rate ends the year at 0.875%. The Fed's current forecast is also 0.875%, but the fed funds future shows 0.6%.

16 Nov. 2015 Is Banxico Still Willing to Hike Just After the Fed in December? (My Publications)

Mexico's domestic conditions don't warrant an imminent rate hike in the near term. Headline inflation continues to fall, reaching an all-time low of 2.5% in October. It should remain below 3% in the coming months. And core prices remain wellbehaved, increasing at a modest pace, signalling very little pass-through of the MXN's depreciation. Economic activity gained some momentum in Q3-- this will be confirmed on Friday's GDP report--but demand pressures on inflation are absent and the output gap is still ample. Under these conditions, policymakers should not be in a rush to hike, but they have signalled once again that they will act immediately after the Fed.

16 March 2017 The Fed Won't be Able to Dodge the Fiscal Policy Question in June (My Publications)

It might seem odd to describe a meeting at which the Fed raised rates for only the third time since 2006 as a holding operation, but that just about sums up yesterday's actions. The 25bp rate hike was fully anticipated; the forecasts for growth, inflation and interest rates were barely changed from December; and the Fed still expects a total of three hikes this year.

26 Jan. 2015 All Eyes on ECI - Nothing Matters More to the Fed than Wages (My Publications)

This week is, potentially, hugely important in determining the Fed's near-term view of the real state of the labor market and its approach to monetary policy over the next few months. The key event is the release of the fourth quarter employment cost index, which could make a material difference to perceptions of the degree of wage pressure.

16 Mar. 2015 The Fed won't wait for the Whites of Inflation's eyes (My Publications)

We don't often picks fights with Nobel prize winners and former Treasury secretaries. But right now we think that Paul Krugman and Larry Summers, leading lights of the view that the Fed should not begin to raise rates "until you see the whites of inflation's eyes", are dead wrong.

15 May. 2015 QE Should Insulate Eurozone Credit Markets from Fed Rate Hike (My Publications)

Recent bond market volatility has left a significant mark on Eurozone credit markets. The recent slide in the Bloomberg composite index for Eurozone corporate bonds is the biggest since the U.S. taper tantrum in 2013. The prospect of a Fed hike later this year and rising inflation expectations in the Eurozone have changed the balance of risk for fixed income markets.

29 Jan. 2015 Fed Upgrades its Growth View - Markets Look Elsewhere (My Publications)

The Fed left in place the three key elements of its statement yesterday, repeating that the extent of labor market under-utilization is "diminishing"; that the inflation drop as a result of falling oil prices will be "transitory" and that the Fed can be "patient" before starting to raise rates.

7 June. 2016 Atlanta Fed Wage Tracker Hits Seven-Year High - Does it Matter? (My Publications)

The headline hourly earnings data for May were dull, showing the year-over-year rate unchanged at 2.5%. That's up from 2.1% in the year to May 2015, but it's not an alarming rate of increase. But the Atlanta Fed's median hourly earnings data, which track the wages of individuals from year-to-year, show wages up 3.4% year-over-year, the fastest rate of increase since February 2009.

6 March 2017 Fed Fears Hit LatAm FX Last Week - is a Renewed Sell-off Coming? (My Publications)

LatAm assets have struggled in recent days as it has become clear that the Fed will hike next week. But we don't expect currencies to collapse, as domestic fundamentals are improving and the broader external outlook is relatively benign.

14 Sept. 2015 Fed Likely on Hold this Week, but Action is Merely Deferred (My Publications)

This could have been a momentous week, but now it very likely will be just another week with another Fed meeting where rates are left on hold. Our call has very little to do with the underlying state of the economy, which we think can cope with higher rates, and needs them, given the tightness of the labor market. Instead, the story is all about the perceptions--misplaced, in our view--of both the Fed and the markets.

14 Mar. 2016 Three Big Questions are the Key to the Fed's Actions this Year (My Publications)

A huge wave of data will break over markets this week, along with the FOMC meeting, new dot plots and Chair Yellen's press conference. But today is calm, with no significant data releases and no Fed speeches; policymakers are in purdah ahead of the meeting.

14 June 2017 Fed to Stick to One More 2017 Hike After Today, and Three More in 2018 (My Publications)

The Fed will hike by 25 basis points today, but what really matters is what they say about the future, both in the language of the statement and in the dotplot for this year and next.

4 May 2017 Fed on Hold Today After Mixed Data, but a June Hike Still Looks Likely (My Publications)

The Fed surprised no-one yesterday, leaving rates on hold, saying nothing new about the balance sheet, and making no substantive changes to its view on the economy. The statement was tweaked slightly, making it clear that policymakers are skeptical of the reported slowdown in GDP growth to just 0.7% in Q1: "The Committee views the slowing in growth during the first quarter as likely to be transitory".

30 May 2017 Why Don't Markets Take the Fed's Interest Rate Forecasts Seriously? (My Publications)

Markets expect the Fed will fail to follow through on its current intention to raise rates twice more this year and three times next year. Part of this skepticism reflects recent experience.

29 Oct. 2015 All Fed Eyes Now on the October, November Employment Reports (My Publications)

The Fed yesterday toned down its warnings on the potential impact on the U.S. of "global economic and financial developments", and upgraded its view on the domestic economy, pointing out that consumption and fixed investment "have been increasing at solid rates in recent months". In September, they were merely growing "moderately". Policymakers are still "monitoring" global and market developments, but the urgency and fear of September has gone. The statement acknowledged the slower payroll gains of recent months--without offering an explanation--but pointed out, as usual, that "underutilization of labor resources has diminished since early this year" and that it will be appropriate to begin raising rates "some further improvement in the labor market".

15 June. 2016 Fed on Hold, and Unlikely Clearly to Signal a July Hike (My Publications)

We expect the Fed to leave rates on hold today, but the FOMC's new forecasts likely will continue to show policymakers expect two hikes this year, unchanged from the March projections. We remain of the view that September is the more likely date for the next hike, because we think sluggish June payrolls will prevent action in July.

3 May 2017 Fed on Hold Today After Mixed Data, but a June Hike Still Looks Likely (My Publications)

The Fed likely will do nothing today, both in terms of interest rates and substantive changes to the statement. We'd be very surprised to hear anything new on the Fed's plans for its balance sheet.

30 Mar. 2015 Output Gap Uncertainty Paralysis Keeps the Fed's Focus on Wages (My Publications)

Perhaps the biggest single reason for the Fed's reluctance, so far, to move away from monetary policy designed to cope with catastrophe is that no-one knows for sure how much of the damage has been repaired, and how close the economy is to normalizing.

23 May. 2016 LatAm Markets Hit by a Hawkish Fed - Choppy Summer Ahead? (My Publications)

Weakness across EM asset markets returned after the April FOMC minutes, released last week, suggested that a June rate hike is a real possibility. The risks posed by Brexit, however, is still a very real barrier to Fed action, with the vote coming just eight days after the FOMC meeting.

23 May. 2016 Does the Fed Funds Laffer Curve Explain Sluggish Growth? (My Publications)

Like just about everyone else, we have struggled in recent years to find a convincing explanation for the persistent sluggishness of growth even as the Fed has cut rates to zero and expanded its balance sheet to a peak of $4.2T. Sure, we can explain the slowdown in growth in 2010, when the post-crash stimulus ended, and the subsequent softening in 2013, when government spending was cut by the sequester.

19 August. 2016 Dear Fed, Please Don't Increase the Inflation Target. Thanks. (My Publications)

Everyone heard San Francisco Fed president Williams's suggestion Monday that central banks could raise their inflation targets in response to the sustained slow growth and lower-than-expected inflation of recent years. It's not clear, though, that markets grasped the scale of the increase he thinks might be appropriate.

20 June 2017 As the Balance Sheet Shrinks, how can we Assess the Fed's Stance? (My Publications)

The initial pace of the Fed's balance sheet run-off, which we expect to start in October, will be very low. At first, the balance sheet will shrink by only $10B per month, split between $6B Treasuries and $4B mortgages.

20 June. 2016 How Can the Fed Escape From the Loop of Endless Inaction? (My Publications)

For some time, the Fed has been locked in a loop of endless inaction. Every time the economic data improve and the Fed signals it is preparing to raise rates, either markets--both domestic and global-- react badly, and/or a patch of less good data appear. The nervous, cautious Yellen Fed responds by dialling back the talk of tightening, and markets relax again, until the next time.

18 Sept. 2015 Global Risks Keep Fed on Hold - December Now in the Frame (My Publications)

The Yellen Fed acted--or rather, didn't act--true to form yesterday, preferring to take its chances with inflation one or two years down the line rather than surprising the markets by hiking rates and risking the consequences. Even before Dr. Yellen's tenure, the Fed has long been reluctant to defy market expectations on the day of FOMC meetings. Engineering a shift in market views of the likely broad path of policy is one thing, but shocking investors with unexpected action on specific days is another matter altogether.

20 Mar. 2015 LatAm FX Rally After Fed's Signal, But Relief Will be Temporary (My Publications)

The global economy is heading towards a new scenario, triggered by the impending start of the monetary policy normalization process in the U.S. In some major economies, notably the Eurozone, the Fed's actions will not derail or even jeopardize the cyclical economic upturn.

2 November. 2016 No Action From the Fed Today (My Publications)

The Fed won't raise rates today, or substantively change the wording of the post-meeting statement. In September, the FOMC said that "The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives."

19 Jan. 2016 Market Chaos in January Does Not Drive Fed Actions All Year (My Publications)

To paraphrase recent correspondence: "How can you possibly believe, given the terrible run of economic data and the turmoil in the markets, that the Fed will raise rates in March/June/at all this year?" Well, to state the obvious, if markets are in anything like their current state at the time of the eight Fed meetings this year, they won't hike. That sort of sustained downward pressure and volatility would itself prevent action at the next couple of meetings, as did the turmoil last summer when the Fed met in September. And if markets were to remain in disarray for an extended period we'd expect significant feedback into the real economy, reducing--perhaps even removing--the need for further tightening.

19 May. 2016 Fed on Course to Hike, Soon, but Will Brexit Risk Forestall June? (My Publications)

The April FOMC minutes don't mince words: "Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee's 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June".

2 Mar. 2015 If Real Wages are Key for the Fed, Policy Will Change Very Soon (My Publications)

If recent labor market trends continue, the four employment reports which will be released before the June FOMC meeting will show the economy creating about 1.1M jobs, pushing the unemployment rate down to 5.3%, almost at the bottom of the Fed's estimated Nairu range, 5.2-to-5.5%.

2 March 2017 How Will the Fed Decide Whether to Hike in March, or Wait? (My Publications)

The odds of a hike this month have increased in recent days, though the chance probably is not as high as the 82% implied by the fed funds future. The arguments against a March hike are that GDP growth seems likely to be very sluggish in Q1, following a sub-2% Q4, and that a hike this month would be seen as a political act.

19 June. 2015 Banxico Still Waiting For the Fed's First Move In September (My Publications)

The June Banxico minutes restated that the U.S Fed's first interest rate increase is the main event awaited by Mexican central bank. Banxico's five member board of governors voted unanimously on June 4th to keep the overnight lending rate target at a record-low 3%, but showed again that board members are fretting over when to hike, as at previous meetings.

19 June 2017 Don't Rule Out a September Fed Hike, Watch the Labor Market Data (My Publications)

In the wake of last week's rate increase, the fed funds future puts the chance of another rise in September at just 16%. After hikes in December, March and June, we think the Fed is trying to tell us something about their intention to keep going; this is not 2015 or 2016, when the Fed happily accepted any excuse not to do what it had said it would do.

21 August. 2015 What Does the Fed Need to See in Order to Hike in September? (My Publications)

When the Bernanke Fed embarked on the first of its 17 straight quarter-point tightenings, on 30 June 2004, the latest available GDP data showed that the economy expanded at a robust 3.9% annualized rate in the first quarter of the year. After being revised up to 4.5%, the latest estimate for growth in the first quarter of 2004 is just 2.3%.

21 Dec. 2015 Fed Tightening Triggers Immediate Policy Changes in LatAm (My Publications)

Central banks in Mexico, Colombia and Chile raised interest rates last week in tandem with the Fed, underscoring the almost mystical importance of the FOMC's actions in Latin America. In Colombia and Chile, their decisions were also helped by rising inflation pressures, due mainly to pass-through effects from currency depreciation.

23 Feb. 2015 What if the Terminal Rate is Higher than the Fed Thinks? (My Publications)

A thought, ahead of Chair Yellen's Testimony tomorrow. Conventional wisdom has it that the terminal Fed funds rate in this cycle will b e much lower than in the past--the Fed thinks 3¾%, compared to 5.25% in 2007, and 6.5% in 2000--reflecting the long-lasting legacy of the crash, particularly in household balance sheets.

22 June. 2015 Why is the Fed so Cautious About the Trajectory of Unemployment? (My Publications)

The closer we look at the Fed's new forecasts, the stranger they seem. The FOMC cut its GDP estimate for this year and now expects the economy to grow by 1.9%--the mid-point of its forecast range--in the year to the fourth quarter. Growth is then expected to pick up to 2.6% next year, before slowing a bit to 2.3% in 2017. Unemployment, however, is expected to fall much less quickly than in the recent past.

23 June 2017 Fed Officials Cite "Full Employment" but Worry About Recent CPI Data (My Publications)

A couple of Fed speakers this week have described the economy as being at "full employment". Looking at the headline unemployment rate, it's easy to see why they would reach that conclusion.

17 June. 2016 Yet Another Hurdle: Brexit Fears Overshadow a Dovish Fed (My Publications)

This week's Fed meeting eased many LatAm investors' minds, fuelling rallies in most of the region's currencies. We think the U.S. labour market is going through a genuine soft patch but will regain momentum over the coming months, prompting policymakers to hike rates in September.

17 Dec. 2015 The Beginning of "Gradual" or the Start of the Next Big Fed Mistake? (My Publications)

The FOMC yesterday did what it had to do, and said what it had to say. The super-doves were kicked into line, with a unanimous vote, though two members' blue dots showed they think rates should not have been raised. In our view, though, Dr. Yellen's avowed intention to raise rates gradually sits uneasily with her--correct--assertion that policy remains very accommodative, bearing in mind that the unemployment rate is now at the Fed's estimate of the Nairu, while evidence of accelerating wage gains is burgeoning.

18 August. 2015 Can the Fed Hike if the Empire State Survey is Right? (My Publications)

Just how weak would the manufacturing sector have to be in order to persuade the Fed to hold fire this fall, assuming the labor market numbers continue to improve steadily? The question is germane in the wake of the startlingly terrible August Empire State manufacturing survey, which suggested that conditions for manufacturers in New York are deteriorating at the fastest rate since June 2009.

21 Sept. 2015 Fed Delays Interest Rate Liftoff - LatAm Breathes a Sigh Of Relief (My Publications)

The Fed deferred, but did not cancel, the start of its rate normalization last week. As a consequence, December is now the most likely meeting for the first hike. The Fed's core view of the U.S. economy remains the same, but policymakers want a bit more time to see how global developments affect the U.S. Our Chief Economist, Ian Shepherdson, expects the strength of the employment data, better Chinese numbers and calm financial markets to prevent any further postponement beyond Q4.

18 June. 2015 Fed Still on Course for Two Hikes This Year, and Maybe Three (My Publications)

The gloom which descended on the FOMC in April has lifted, mostly, and policymakers remain on track for two rate hikes this year, likely starting in September. The median fed funds forecast for the end of this year remains at 0.625%, implying a target range of 0.5-to-0.75%.

21 June. 2016 Monetary Policy Testimony Won't Signal a Change in Fed Thinking (My Publications)

Back in the dim and increasingly distant past the semi-annual Monetary Policy Testimony--previously known as the Humphrey-Hawkins--used to be something of an event. Today's Testimony, however, is most unlikely to change anyone's opinion of the likely pace and timing of Fed action.

21 Mar. 2016 The Fed Either Hopes for a Miracle or Wants Inflation to Overshoot (My Publications)

Fed Chair Yellen made it clear in last week's press conference that she is not convinced the increase in core inflation will persist: "I want to warn that there may be some transitory factors that are influencing [the rise in core inflation]... I see some of that is having to do with unusually high inflation readings in categories that tend to be quite volatile without very much significance for inflation over time.

21 Sept. 2015 Fed Abstention Increases the Risk of More QE from the ECB this Year (My Publications)

ECB growth bears looking for the Fed to move in order to take the sting out of the euro's recent strength were disappointed last week. The FOMC refrained from a hike, referring to the risk that slowing growth in China and emerging markets could "restrain economic activity" and put "downward pressure on inflation in the near term." In doing so, the Fed had an eye on the same global risks as the ECB, highlighting increased fears of deflation risks in China, despite a rosier domestic outlook.

14 Jan. 2016 Does Cost-Push Inflation Give the Fed the Luxury of Time? (My Publications)

In yesterday's Monitor we set out the risk that accelerating wages will force the Fed to raise rates more quickly than expected, but we didn't have space to address the underlying premise of this story, namely, the idea that inflation is largely a cost-push phenomenon. From the perspective of fixed income investors, it might not seem to matter whether this is a realistic description of the inflation process, because Fed Chair Yellen believes it wholeheartedly, and her hands are on the levers of monetary policy.

7 November. 2016 Wage Gains Will Focus Fed Minds (My Publications)

If the Fed needed further encouragement to raise rates next month, it arrived Friday in the form of solid jobs numbers, a new cycle low for the broad unemployment rate, and a new cycle high for wage growth.

12 Oct. 2015 Fed Minutes Bring Temporary Relief to Besieged LatAm Markets (My Publications)

In recent weeks LatAm's currencies and stock markets, together with key commodity prices, have risen as financial markets' expectations for a rate increase by the Fed this year have faded. The COP has risen 8.5% over the last month, the MXN is up 2.5%, the CLP has climbed 1.4% and the PEN has been practically stable against the USD. The minutes of the Federal Reserve's latest meeting added strength to this market's view, showing that policymakers postponed an interest rate hike as they worried about a global slowdown, particularly China, the strong USD and the impact of the drop in stock prices.

19 September. 2016 Don't Mistake the Fed's Tactical Decisions for a Change in Strategy (My Publications)

The Fed's strategic view of the economy and policy has not changed since last December, when it first said that "The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.

12 Nov. 2015 US Fed is Set to Hike in December, A Worry For LatAm But not a Crisis (My Publications)

LatAm economies this year have faced a tough external environment of subdued commodity prices, weaker Chinese growth, the rising USD, and the impending Fed lift-off. At the domestic level, lower public spending, low confidence, and economic policy reform have clashed with above-target inflation, which has prevented central bankers from loosening monetary policy in order to mitigate the external and domestic headwinds. In these challenging circumstances, LatAm growth generally continues to disappoint, though performance is mixed.

08 Feb. 2016 Banxico Is Focused on the MXN, But the Fed Still Leads (My Publications)

Banxico left Mexico's benchmark interest rate at 3.25% last week, after increasing it by 25bp in December, when the U.S. Fed raised rates. Banxico's board maintained its neutral tone and indicated that the balance of risks has deteriorated for growth and short-term inflation. As usual, policymakers reiterated the importance of following the Fed closely to avoid financial instability, which in turn could spill over to inflation.

12 August. 2015 China's Devaluation Won't Deter the Fed, Or Wreck the Economy (My Publications)

China's 1.8% downshift in the RMB/dollar reference rate will make only a microscopic difference to the pace of U.S. economic growth and inflation. It will not deter the Fed from raising rates if the domestic labor market continues to tighten, as all the data suggest. The drop in the RMB merely restores the nominal exchange rate to its fall 2012 level, since which time the real exchange rate has risen by some 20%, according to the BIS.

13 Mar. 2015 FX Markets Punish Imbalances When The Fed Hikes - Brazil At Risk (My Publications)

LatAm currencies have suffered in recent weeks. Each country has its own story, so the currency hit has been uneven, but all LatAm economies share one factor: Fear of the start of a Fed tightening cycle.

1 June. 2016 ISM Set to Slip Below 50, but Will the Fed Care Enough to Hold Fire? (My Publications)

When the Fed raised rates in December, it subverted one of its own long-standing conventions by hiking with the ISM manufacturing index below 50. The December survey, released just 15 days before the meeting, showed the headline index slipping to 48.6, the third straight sub-50 reading. It has since been revised down to 48.0, the lowest reading since June 2009.

8 March 2017 Could a Bad Payroll Report for February Really Stop the Fed? (My Publications)

With the FOMC decision now just seven days away, the forcefulness of recent Fed speakers has led many analysts to argue that only a spectacularly bad payroll report, or an external shock, can prevent a rate hike next week. External shocks are unpredictable, by definition, and we think the chance of a startlingly terrible employment report is low, though substantial sampling error does occasionally throw the numbers off-track.

14 Dec. 2015 What Will Happen to the Dots After the Fed Raises Rates? (My Publications)

We have no argument with the consensus view that the language accompanying Wednesday's rate hike will be emollient. The FOMC likely will point out that the policy stance remains very accommodative, and seek to reinforce the idea that it intends to raise rates slowly. That said, recent FOMC statements have not offered any specific guidance on the pace of tightening, saying instead that the Fed "...will take a balanced approach consistent with its longer-run goals... even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."

7 Oct. 2015 Banxico Confirms No Rush to Hike Interest Rates, With the Fed on Hold (My Publications)

The September Banxico minutes restated that the U.S. Fed's first interest rate hike is the key event awaited by Mexican policymakers. Banxico's board of governors voted unanimously on September 21st to keep the main interest rate at a record-low 3%.

13 May. 2015 Fed Lift Off Slightly Delayed - Breathing Space for LatAm? (My Publications)

The US employment data last week reduced further the likelihood of a June Fed rate increase. In turn, this changes the likely timing of the normalization process in some LatAm economies. Our Chief Economist, Ian Shepherdson, expects the Fed to start its normalization process in July or September; the strength of the employment data will prevent any postponement beyond the third quarter.

9 June. 2015 New York Fed Says Weather, Not Seasonals, Hit Q1 Growth (My Publications)

The latest round of Fed analysis on the weakness of first quarter growth, from the New York Fed, completely contradicts the conclusions of the San Fran Fed's work published a couple of weeks ago. The NY Fed found no statistically significant residual seasonality in the GDP numbers, and argued that the reported decline in economic activity was due entirely to the severe weather, which subtracted about two percentage points from headline growth.

30 August. 2016 Banxico is Waiting for Fiscal Policy Action, and the Fed (My Publications)

The minutes from Banxico's August 11 monetary policy meeting--in which Board members unanimously voted to keep rates on hold at 4.25%--confirmed that the bank's policy guidance remains broadly neutral. Subdued economic activity, favourable inflation and gradual fiscal consolidation explain policymakers' position.

30 June 2017 Core PCE Inflation set to Fall Again, but it won't Sway the Fed (My Publications)

We have argued recently that the year-over-year rates of core CPI and core PCE inflation could cross over the next year, with core PCE rising more quickly for the first time since 2010.

30 June. 2016 The Fed's Focus Will Return to the Wage Outlook, Unchanged by Brexit (My Publications)

We aren't materially changing our U.S. economic forecasts in the wake of the U.K.'s Brexit vote, though we have revised our financial forecasts. The net tightening of financial conditions in the U.S. since the referendum is just not big enough--indeed, it's nothing like big enough--to justify moving our economic forecasts.

25 August. 2015 Market Panic Puts Pressure on ECB, but Fed's Response is Key (My Publications)

Weakness in risk assets turned into panic yesterday with the Eurostoxx falling over 6%, taking the accumulated decline to 19% since the beginning of August, and volatility hitting a three-year high. Market crashes of this kind are usually followed by a period of violent ups and downs, and we expect volatile trading in coming weeks. Following an extended bull market in risk assets, the key question investors will be asking is whether the economic cycle is turning.

30 Mar. 2015 Same Old Song - The Fed and the MXN are key factors for Banxico (My Publications)

Mexico's central bank left its main interest rate unchanged last week, citing the need for cautious monetary policy as the economy has lost some momentum during the first months of the year, despite the risk of inflation pass-though effects from the weaker MXN.

26 Feb. 2016 Core PCE Inflation Set to Jump - Fed Target is Within Reach in 2016 (My Publications)

All eyes will be on the core PCE deflator data today, in the wake of the upside surprise in the January core CPI, reported last week. The numbers do not move perfectly together each month, but a 0.2% increase in the core deflator is a solid bet, with an outside chance of an outsized 0.3% jump.

27 June. 2016 Brexit Constrains Fed, but Limited U.S. Fallout Means December is Live (My Publications)

By the close on Friday, the initial reaction in U.S. markets to the U.K. Brexit vote could be characterized as a bad day at the office, but nothing worse. Not a meltdown, not a catastrophe, no exposure of suddenly dangerous fault lines.That's not to say all danger has passed, but the first hurdle has been overcome.

28 August. 2015 August Payrolls Will Support Fed Inaction - Unemployment Won't (My Publications)

We argued yesterday that the August payroll number is unlikely to be a blockbuster, thanks to a combination of problems with the birth/death model and the strong tendency for this month's jobs number to be initially under-reported and then revised substantially higher. But these arguments don't apply to the unemployment rate, which is derived from the separate household survey.

6 Jan. 2015 - How Will the Fed React to Sub- Zero Headline Inflation in Q2? (My Publications)

The latest drop in crude oil prices me ans that sub-zero headline CPI inflation in the spring is now more likely than not. We expect a lurch down from November's 1.3% to 0.7% in December, then 0.3% in January. The rate will remain close to that level for the next few months before hitting zero in May and slipping into negative territory--just--in June and July.

8 June. 2015 Expect more jobs reports like May's, piling pressure on the Fed (My Publications)

The winter hit to payrolls is now ancient history. Private employment rose by an average of 273K per month in the second half of last year, so May's 262K has restored normal service, more or less. History strongly suggests the number will be revised up, so we are happy to argue that the data convincingly support our view that the weakness in late winter and early spring was temporary, substantially due to the severe weather.

8 May 2017 Fed Hawks Will Focus More on Unemployment than Wage Gains (My Publications)

At their March meeting FOMC members' range of forecasts for the unemployment rate in the fourth quarter of this year ranged from 4.4% to 4.7%, with a median of 4.5%. But Friday's report showed that the unemployment rate hit the bottom of the forecast range in April.

9 Feb. 2015 Labor Data Forcing the Fed Into a Corner - (My Publications)

It's always easy to find reasons to doubt single monthly observations of any economic time series, but our first chart makes it very clear that the labor market has strengthened markedly over the past few months. The underlying trend rate of growth in private payrolls is now above 300K for the first time in exactly 20 years, and we seen no reason to expect much change over the next few months.

9 May. 2016 Banxico Will Wait for the Fed to Hike - No Reasons to Move Soon (My Publications)

Banxico left Mexico's benchmark interest rate at 3.75% on Thursday, maintaining its neutral tone and indicating that the balance of risks is unchanged for both inflation and growth. Policymakers remain confident that inflation will remain under control over the coming months, below 3%, but noted that they expect a brief increase above the target during Q4.

8 December. 2016 Will the Fed Move up the Dotplot in Anticipation of Fiscal Easing? (My Publications)

We're hearing a good deal of speculation about the dotplot after next week's FOMC meeting, with investors wondering whether the median dot will rise in anticipation of the increased inflation threat posed by substantial fiscal loosening under the new administration. We suspect not, though for the record we think that higher rate forecasts could easily be justified simply by the tightening of the labor market even before any stimulus is implemented.

6 June. 2016 Payrolls Will Rebound Over the Summer - Fed to Hike in September (My Publications)

We chose last week to ignore the payroll warning signal from the ISM non-manufacturing employment index, which rolled over in January and February, because the danger seemed to have passed. The ISM is not always a reliable indicator--the drop in the index in early 2014 was not replicated in the official data, but the plunge in early 2015 was--and usually it operates with a very short lag, just a month or two.

31 August. 2015 Fed Officials All Over the Map, But September Still Looks Unlikely (My Publications)

FOMC members in fleeces took to the airwaves en masse on Friday morning from Jackson Hole, but most said pretty much what you'd expect them to say. Arch-hawks Loretta Mester and no-quite-so-hawkish Jim Bullard strongly suggested that they think the time to raise rates is very near, while super-dove Naryana Kocherlakota said he doesn't regard a near-term hike as "appropriate". No surprises there.

5 June 2017 May Payrolls Hit by the Calendar, Expect a Rebound, and a Fed Hike (My Publications)

We don't believe that payrolls rose only 138K in May. History strongly suggests that when the May payroll survey is conducted relatively early in the month, payroll growth falls short of the prior trend.

5 Mar. 2015 Stronger Fed Growth Forecasts Mean Even Lower Unemployment (My Publications)

In the wake of last week's downward revision to fourth quarter GDP growth, productivity will be revised down too. We expect the initial estimate, -1.8%, to be revised down to -2.4%, a startling reversal after robust gains in the second and third quarters.

30 March 2017 Can Unemployment Fall to 4% or Less? What Would the Fed do? (My Publications)

The unemployment rate hit its post-1970 low in April 2000, at the peak of the first internet boom, when it nudged down to just 3.8%. The low in the next cycle, first reached in October 2006, was rather higher, at 4.4%.

19 Mar. 2015 Reluctant Tighteners, but the Fed Will Have to Move - June Still Live (My Publications)

The FOMC gave every impression yesterday that it was collectively very reluctant to drop "patient" from the statement--presumably, members conceded that the surge in employment growth left them no choice--and then did its very best to pretend that the change in the language didn't mean very much.

11 Mar. 2015 Fed Rate Hike Fears Now the Key Worry For LatAm Central Banks (My Publications)

Inflation appears no longer to be an issue for Mexican policymakers. The annual headline rate slowed to 3.0% year-over-year in February from 3.1% in January, in the middle of the central bank's target range, for the first time since May 2006.

11 Nov. 2015 Mexico Relying on the Fed - Chile Looking for China's Recovery (My Publications)

Mexico's inflation remains the envy of LatAm, having consistently outperformed the rest of the region this year. Headline inflation slowed marginally to 2.5% in October, a record low and below the middle of Banxico's target, 2-to-4%, for the sixth straight month. The annual core rate increased marginally to 2.5% in October from 2.4% in September, but it remains below the target and its underlying trend is inching up only at a very slow pace. We expect it to remain subdued, closing the year around 2.7% year-over-year. Next year it will gradually increase, but will stay below 3.5% during the first half of 2016, given the lack of demand pressures and the ample output gap.

12 Jan. 2015 - Unemployment Plunging Towards the Nairu - What Will the Fed Do? (My Publications)

The strength in payrolls in recent months is real. The three-month moving average increase in private payrolls now stands at 280K, despite adverse seasonal adjustments totalling 91K in the fourth quarter, compared to the same period last year.

12 July 2017 Yellen Will Re-affirm Fed Policy. Expect no Revelations, or Dates (My Publications)

Chair Yellen has become quite good at not giving much away at her semi-annual Monetary Policy Testimony.

10 November. 2016 How Far Will Trump Loosen Fiscal Policy? And How Will the Fed React? (My Publications)

Note: This updates our initial post-election thoughts, adding more detail to the fiscal policy discussion. Apologies for the density of the text, but there's a lot to say. Our core conclusions have not changed since the election result emerged. The biggest single economic policy change, by far, will be on the fiscal front.

10 July 2017 Jobs Gains to Push Unemployment Below 4%, the Fed will Hike Further (My Publications)

The gratifyingly strong 222K headline June payroll gain, if repeated through the second half of the year, will put unemployment below 4% by December.

01 May. 2015 Fed doves on the defensive as wages break to the upside (My Publications)

The 0.7% first quarter increase in the ECI measure of private sector wages and salaries raised the year-over-year rate to 2.8%, the highest since late 2008 and significantly stronger than the 2.1% increase in hourly earnings in the year to March.

07 Mar. 2016 Wage Pressures are Building - Fed Inaction Will Hurt, Later (My Publications)

Whatever you do, don't fret over the apparent loss of momentum in the wages numbers; it's a classic statistical head fake, as we pointed out in Friday's Monitor, before the report. When the 15th of the month--payday for people paid semi monthly-- falls after the employment survey week, the BLS fails properly to capture their income, and hourly earnings are under-reported.

1 Dec. 2014 Fed Set to Respond As Unemployment Hits Nairu (My Publications)

It has become fashionable to argue that the combination of favorable yield differentials and abundant global liquidity, courtesy of the BoJ and the ECB, will keep Treasury yields very low for the foreseeable future; the 10-year could even establish itself below 2%.

13 Jan. 2016 How Fast Can the Fed Allow Wages to Rise? (My Publications)

The leading wage indicators in the December NFIB survey, released in full yesterday--some of the labor market components appears a few days in advance, ahead of the official payroll report--all point to a substantial acceleration over the next six-to-nine months. Our first two charts show the NFIB jobs-hard-to-fill number and expected compensation numbers, respectively, compared to the rate of growth of hourly earnings. The message is extremely clear.

13 September 2017 Korean Borrowing Begins to Recover, but the Fed isn't Done yet (My Publications)

Korean credit markets have begun tentatively to recover after the rise in global interest rates at the end of last year.

20 May. 2015 What Does the Fed Think Really Happened in the First Quarter? (My Publications)

The FOMC's statement on April 29 mentioned the winter--"...economic growth slowed during the winter months"--but did not explicitly blame any of the first quarter's weakness on the extended cold and snowy weather. That was a change from the March statement, which made no mention of the weather and gave the distinct impression that policymakers had no firm view on why growth had "moderated".

23 January 2017 The Fed's Idea of Full Employment is not the Same as Main Street's (My Publications)

Full employment is a deceptively simple-sounding concept. If everyone who wants a job has one, the economy is at full employment, right? Anything less tends to raise eyebrows among non-economists, whether the people who want a job are formally inside the labor force, or have dropped out but would come back if they thought they could find work.

23 Sept. 2015 Mexico On Hold, Keeping Calm And Still Waiting for the Fed (My Publications)

Banxico left Mexico's benchmark interest rate at a record low of 3% on Monday, maintaining its neutral tone and indicating that the balance of risks is unchanged for both inflation and growth. Policymakers remain confident that inflation will remain under control over the coming months, below 3% over the fourth quarter, but they repeated their message that they are vigilant to any inflation pass though from MXN depreciation into prices.

19 Nov. 2015 Fed Set for December Hike, but Expect Two Dissents (My Publications)

At the October FOMC meeting, policymakers softened their view on the threat posed by the summer's market turmoil and the slowdown in China, dropping September's stark warning that "Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term." Instead, the October statement merely said that the committee is "monitoring global economic and financial developments."

18 Dec. 2014 - Fed on Course to Raise Rates in Spring, Unless the Data Intervene (My Publications)

If clarity is the first test of written English, the FOMC failed miserably yesterday. "Considerable time" is gone, but the new formulation--"the Committee judges that it can be patient in beginning to normalize the stance of monetary policy"--was not clearly defined, though the FOMC did say it is "consistent with its previous statement".

14 November. 2016 How Will the Fed React to Next Year's Inflationary Shock? (My Publications)

Markets are beginning to grasp that President-elect Trump's economic plans, if implemented in full--or anything like it--will constitute substantial inflationary shock to the U.S.

15 August. 2016 Dovish, but Vigilant Policymakers in LatAm - the Fed is the Key Risk (My Publications)

Last week, Banxico, the BCCh and the BCRP all left their reference rates on hold. Their currencies have remained relatively stable in recent months and inflation pressures are under control. In Mexico, Banxico has adopted a more discretionary approach, following two 50bp hikes this year.

16 June. 2015 Manufacturing is Struggling, but it Won't Get the Fed off the Hook (My Publications)

Another month, another sluggish performance in the manufacturing sector. Even a third straight big jump in auto output was unable to rescue the May numbers, and aggregate output fell by 0.2%. The trend in output has been broadly flat over the past six months or so, and we see little prospect of any sustained near-term recovery.

24 July. 2015 While We're Out, What to Look for in the Data, and From the Fed (My Publications)

This is the last Monitor before we head to the beach, so we want to offer a few thoughts on the upcoming data and the FOMC meeting while we're out. First, a warning about the second quarter GDP number. We think that the data released so far are consistent with growth at about 3%.

25 Mar. 2015 LatAm Central Banks Will Exploit Market's View on Fed's Stance (My Publications)

The Colombian economy--the star of the previous economic cycle in LatAm--is now slowing significantly, due mostly to strong external headwinds. Exports plunged by 40% year-over-year in January, down from -29% in December, with all of the main categories contracting in the worst performance since 1980.

15 June 2017 Yellen to Markets: Core Inflation is Noisy, the Labor Market is the Key (My Publications)

The Fed's action, statement, and forecasts, and Chair Yellen's press conference, made it very clear the Fed is torn between the dovish signals from the recent core inflation data, and the much more hawkish message coming from the rapid decline in the unemployment rate.

31 May. 2016 Banxico is Managing the Peso, Not the Business Cycle, For Now (My Publications)

Banxico's quarterly inflation report, released last week, underscored concerns over growth as well as the weakness of the MXN and the risks p osed by the Fed's imminent tightening. Policymakers downgraded Mexico's GDP forecast for 2017 to 2.3-to-3.3% year-over-year, from 2.5-to-3.5%. Weaker-than-expected U.S. manufacturing activity is behind the downshift.

3 Sept. 2015 Trade Deficit Likely Dropped in July, but Q3 Picture Still Unclear (My Publications)

The July trade deficit likely fell significantly further than the consensus forecast for a dip to $42.2B from $43.8B in June, despite the sharp drop in the ISM manufacturing export orders index. Our optimism is not just wishful thinking on our p art; our forecast is based on the BEA's new advance trade report. These data passed unnoticed in the markets and the media. The July report, released August 28, wasn't even listed on Bloomberg's U.S. calendar, which does manage to find space for such useless indicators as the Challenger job cut survey and Kansas City Fed manufacturing index. Baffling.

15 June. 2015 Unwinding the Double Delusion - Brace for Rising Rate Expectations (My Publications)

Markets don't believe the Fed's interest rate forecasts. For the fourth quarter of this year, that's probably right; the FOMC's median projection back in March was 0.63%; that will likely be revised down this week. For the next two years, though, things are different.

3 July 2017 Three Jobs Reports in Nine Weeks set to Shift Market Rate Expectations (My Publications)

The next nine weeks bring three jobs reports, which will determine whether the Fed hikes again in September, as we expect, and will also help shape market expectations for December and beyond.

5 July 2017 The ECB Needs a Weaker Euro in Q3 to Keep its Core CPI Forecast (My Publications)

Currency markets often make a mockery of consensus forecasts, and this year has been no exception. Monetary policy divergence between the U.S. and the Eurozone has widened this year; the spread between the Fed funds rate and the ECB's refi rate rose to a 10-year high after the Fed's last hike.

5 Nov. 2015 Yellen Signals December Action, Data Permitting (My Publications)

Fed Chair Yellen yesterday reinforced the impression that the bar to Fed action in December, in terms of the next couple of employment reports, is now quite low: "If we were to move, say in December, it would be based on an expectation, which I believe is justified, [our italics] that with an improving labor market and transitory factors fading, that inflation will move up to 2%." The economy is now "performing well... Domestic spending has been growing at a solid pace" making a December hike a "live possibility." New York Fed president Bill Dudley, speaking later, said he "fully" agrees with Dr. Yellen's position, but "let's see what the data show."

7 August 2017 While we were Out... (My Publications)

...The Fed did nothing, surprising no-one; the labor market tightened further; the housing market tracked sideways; survey data mostly slipped a bit; and oil prices jumped nearly $4, briefly nudging above $50 for the first time since May.

7 April 2017 What Place will QE have in the Bank's Future Policy Mix? (My Publications)

Markets were jolted yesterday by news that the U.S. Fed is mulling ending, or at least slowing, the reinvestment of Treasuries and mortgage-backed securities later this year. Such a move would reduce liquidity in global markets that has underpinned soaring equity prices in recent years.

6 March 2017 Yellen Effectively Promises a March Hike, with Good Reason (My Publications)

Fed Chair Yellen's speech Friday was remarkably blunt: "Indeed, at our meeting later this month, the Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate."

6 Apr. 2016 Productivity Slowdowns Have Happened Before, and Reversed (My Publications)

With only three weeks to go until the release of the initial official estimate of first quarter GDP, the Atlanta Fed's GDPNow measure shows growth at just 0.4%. Our own estimate, which includes our subjective forecasts for the missing data--the Atlanta Fed's measure is entirely model-based--is a bit higher, at 1%, and both measures could easily be revised significantly.

15 March 2017 Rates Will Rise by 25bp Today, but Extra Dots More Likely in June (My Publications)

The Fed will hike by 25 basis points today, citing the tightening labor market as the key reason to press ahead with the process of policy normalization. We think the case for adding an extra dot to the plot for both this year and next is powerful.

28 Sept. 2015 Don't Believe Case-Shiller Home Price Data - Prices are Rising (My Publications)

Former Treasury Secretary and thwarted would-be Fed Chair Larry Summers has been arguing for some time that the Fed should not raise rates "...until it sees the whites of inflation's eyes". As part of his campaign to persuade actual Fed Chair Yellen of the error of her intended ways, he argued at the World Economic Forum in September that the strong dollar has played no role in depressing inflation. Never one to miss an opportunity to diss the competition, he wrote that Stanley Fischer's view that the dollar has indeed restrained inflation is "substantially weakened" by the hard evidence. Dr. Summers' view is that inflation is being held down by other, longer-lasting factors, principally the slack in the lab or market, rather than the "transitory" influences favored by the Fed.

16 June. 2016 Don't Fret Over One Jobs Report, Says Yellen, Doing Exactly That (My Publications)

If the Fed really believed its own rhetoric--"Inflation is expected... to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further"--it would have raised rates yesterday, given the very long lags between policy action and the response from the real economy.

26 January 2017 Will Today's Data Shift Fourth Quarter GDP Growth Forecasts? (My Publications)

Three of today's economic reports, all for December, could move the needle on fourth quarter GDP growth. Ahead of the data, we're looking for growth of 1.8%, a bit below the consensus, 2.2%, and significantly weaker than the Atlanta Fed's GDPNow model, which projects 2.8%.

16 Mar. 2016 Can Yellen Reconcile Lower Dots, Rates on Hold and Rising Inflation? (My Publications)

The further improvement in labor market conditions and the jump in core inflation means that the economic data have given the Fed all the excuse it needs to raise rates today. But the chance of a hike is very small, not least because the fed funds future puts the odds of an action today at just 4%, and the Fed has proved itself very reluctant to surprise investors-- at least, in a bad way--in the past.

25 Sept. 2015 Yellen Defends Orthodoxy: Policy Lags Mean Rates to Rise this Year (My Publications)

Fed Chair Yellen set out a robust and detailed defense of the orthodox approach to monetary policy in her speech in Amherst, MA, yesterday afternoon. Her core argument could have come straight from the textbook: As the labor market tightens, cost pressures will build. Monetary policy operates with a "substantial" lag, so waiting too long is dangerous; the "...prudent strategy is to begin tightening in a timely fashion and at a gradual pace".

16 July. 2015 Upbeat Yellen Dismisses European Risk - Focus Back on U.S. Data (My Publications)

Fed Chair Yellen said nothing very new in the core of her Monetary Policy Testimony yesterday, repeating her view that rates likely will have to rise this year but policy will remain accommodative, and that the labor market is less tight than the headline unemployment rate suggests. The upturn in wage growth remains "tentative", in her view, making the next two payroll reports before the September FOMC meeting key to whether the Fed moves then.

27 Apr. 2016 FOMC Statement Today Likely to Offer Little to Rate Hawks (My Publications)

A rate hike today would be a surprise of monumental proportions, and the Yellen Fed is not in that business. What matters to markets, then, is the language the Fed uses to describe the soft-looking recent domestic economic data, the upturn in inflation, and, critically, policymakers' views of the extent of global risks.

15 September. 2016 Will September's Regional Surveys Follow the ISM's Drop? (My Publications)

Today's huge wall of data will add significantly to our understanding of third quarter economic growth, with new information on consumers' spending, industrial activity, inflation and business sentiment. In light of the unexpected drop in the ISM surveys in August, we are very keen to see the Empire State and Philly Fed surveys for September.

16 Dec. 2015 Yellen Set to Signal Gradual Hikes, But Will the Data Let Her Deliver? (My Publications)

The Fed will raise rates by 25 basis points today, 11 years and six months since the previous tightening cycle began, in June 2004. This tightening, like that one, will end in recession eventually, but this time around we expect a garden-variety business cycle downturn rather than a massive financial crash and a near-death experience for global capitalism.

27 May. 2015 Seasonal Biases Set to Lead to GDP Growth Restatement (My Publications)

The news that the seasonal adjustments in the GDP numbers are even less reliable than previously thought means the Fed likely will put even greater emphasis on the labor market when pondering when to begin raising rates. A cost-push view of the inflation process necessarily centers on the labor data, but every FOMC statement begins with an assessment of the overall pace of growth.

27 January 2017 Q4 Growth Likely Hit by Foreign Trade, Temporarily (My Publications)

We expect to learn today that the economy expanded at a 1.7% rate in the fourth quarter. At least, that's our forecast, based on incomplete data, and revisions over time could easily push growth significantly away from this estimate. The inherent unreliability of the GDP numbers, which can be revised forever--literally--explains why the Fed puts so much more emphasis on the labor market data, which are volatile month-to-month but more trustworthy over longer periods and subject to much smaller revisions.

7 Dec. 2015 After the First Hike, Next Week, Wage Gains Will Set the Pace (My Publications)

We're guessing Fed Chair Yellen would have preferred to have another acceleration in hourly earnings and a dip in the unemployment rate along side the hefty 211K leap in November payrolls, but no matter. At its October meeting, the Fed wanted to see "some further improvement in the labor market", and by any reasonable standard a 509K total increase in payrolls in two months fits the bill.

7 December 2016 Brazil's Copom is Ready to Act Boldly, but Politics Pose Risks (My Publications)

In Brazil, the minutes of the Copom's November meeting, released yesterday, are consistent with our forecast for a 50bp rate cut in January. At its last two meetings, the BCB cut the Selic rate by only 25bp, to 13.75%, amid concerns about services inflation, global uncertainty, and the Fed's likely rate hike next week.

10 Feb. 2016 Yellen to Sound Cautious Today, but Can't Ignore the Labor Market (My Publications)

Fed Chair Yellen today needs to strike a balance between addressing investors' concerns over the state of the stock market and the risks posed by slower growth in Asia, and the tightening domestic labor market.

10 August. 2015 While We Were Out... (My Publications)

...The Fed told investors that it now requires only "some further improvement" in labor market conditions before starting to raise rates-- the "some" is new--but did not set out any specific conditions. With the unemployment rate now just a tenth above the top of the Fed's Nairu range, 5.0-to-5.2%, and very likely to dip into it by the time of the decision on September 17, while payroll growth is trending solidly above 200K per month, rates already would have been raised some time ago in previous cycles.

10 June. 2015 Tightening Labor market pushing up small firms' pricing plans? (My Publications)

The May NFIB survey and the April JOLTS report, both released yesterday, paint a coherent, if not yet definitive, picture of labor market developments which should alarm the Fed. The data suggest that the true labor supply, in the eyes of potential employers, is much smaller than implied by the BLS's measures of broad unemployment.

11 Apr. 2016 Stronger Growth and Accelerating Wages Will Shift Rate Sentiment (My Publications)

A reader sent us last week a series of five simple feedback loops, all of which ended with the Fed remaining "cautious". For example, in a scenario in which the dollar strengthens--perhaps because of stronger U.S. economic data--markets see an increased risk of a Chinese devaluation, which then pummels EM assets, making the Fed nervous about global growth risks to the domestic economy.

11 Dec. 2015 The MPC is Independent, But it Cannot Ignore Other Central Banks (My Publications)

The MPC's asserted its independence in the minutes of December's meeting, firmly stating that there is "no mechanical link between UK policy and those of other central banks". Markets have interpreted this as supporting their view that the MPC won't be rushed into raising interest rates by the Fed's actions. Investors now expect a nine-month gap between the Fed hike we anticipate next week, and the first move in the U.K.

1 July. 2015 LatAm Markets Threatened by the Deepening Greek Crisis (My Publications)

A mix of political and economic events have triggered outflows of capital from emerging markets this year. Tensions in Europe, due to the "Grexit" saga, together with China's slowdown and concerns about Fed lift-off have weighed on EM flows. In recent months, though, some of the pressure on EM currencies has eased as the markets have come to expect fewer U.S. rate hikes in the near term.

08 Mar. 2016 Can the Spike in Labor Market Participation be Sustained? (My Publications)

It's very tempting to look at the upturn in the participation rate in recent months and extrapolate it into a sustained upward trend. If the trend were to rise quickly enough, it conceivably could prevent any further fall in the unemployment rate, preventing it falling below the bottom of the Fed's estimated Nairu range.

03 Feb. 2016 Stan Fischer Wants Steady 3% Wage Gains - Good Luck (My Publications)

Stanley Fischer said something interesting and potentially very revealing in the Q&A following his speech Tuesday afternoon at the Council on Foreign Relations. The Fed Vice-Chair argued that wage increases of 3% are "where people would like to be", meaning, presumably, that he believes sustained wage gains at this pace are consistent with the Fed's 2% medium-term inflation forecast.

05 August. 2015 Corporate Bonds are Struggling, But QE and ZIRP offer Support (My Publications)

A looming rate lift-off at the Fed, chaos in Greece, and a renewed rout in commodities have given credit markets plenty to worry about this year. The Bloomberg global high yield index is just about holding on to a 0.7% gain year-to-date, but down 2.5% since the middle of May. The picture carries over to the euro area where the sell-off is worse than during the taper tantrum in 2013.

01 May. 2015 Brazil's two-year tightening cycle is over, at least for now (My Publications)

While we were out, monetary policy in Latin America was unchanged, except in Brazil, where the Monetary Policy Committee--Copom--this week raised the Selic rate by 50bp to 13.25%, in line with expectations. Looking ahead, we now expect no changes in policy in Brazil or elsewhere over the next few months, or at least until the Fed starts hiking rates.

07 May. 2015 How Far Will Yields Rise When the Activity Data Turn Higher? (My Publications)

Along with just about every other commentator and market participant, we have been wondering in recent months how longer Treasuries would react to the Fed starting to raise rates at the same time the ECB and BoJ are pumping new money into their economies via QE.

2 Dec. 2015 Yellen to Affirm Labor Market Gains, Promise "Gradual" Hikes (My Publications)

Fed Chair Yellen speaks to the Economics Club of Washington, D.C., at 12.25 Eastern today, a day before she appears before the Joint Economic Committee of Congress at 10.00 Eastern. These will be her last public utterances before the FOMC meeting on December 16. Dr. Yellen won't say anything which could be interpreted as seeking to front-run the outcome of the meeting; that's not her style. But we expect her clearly to repeat that the Fed's decision will depend on whether progress has been made since October towards the Fed's twin objectives of maximum employment and 2% inflation.

11 Feb. 2016 March is Still in Play, but Only if Data and Markets Cooperate (My Publications)

If Fed Chair Yellen's objective yesterday was to deliver studied ambiguity in her Testimony--and we believe it was--she succeeded. She offered plenty to both sides of the rate debate. For the hawks, she noted that unemployment is now "...in line with the median of FOMC participants' most recent estimates of its longer-run normal level", and that inflation is still expected to return to the 2% target, "...once oil and import prices stop falling".

14 Dec. 2015 Can Eurozone Equities Withstand Global Headwinds Next Year? (My Publications)

Barring a gigantic shock from the Fed this week--we expect a 25bp hike--Eurozone equities will end the year with a solid return for investors, who have been overweight. Total return of the MSCI EU ex-UK should come in around 10%, which compares to a likely flat return for the MSCI World, reflecting the boost from the ECB's QE driving out performance. Our first chart shows the index has been mainly lifted by consumer sector, healthcare and IT stocks, comfortably making up for weakness in materials and energy. The year has been a story of two halves, however, and global headwinds have intensified since the summer, partly offsetting the surge in the Q1 as markets celebrated the arrival of QE and negative interest rates.

14 Jan. 2015 - Small Firms Recovery Accelerates, but Labor Costs are Rising (My Publications)

Yesterday's data were second-tier in the eyes of the markets, but not, perhaps in the eyes of the Fed. The continued surge in job openings, which reached a 14-year high in December, means that the Beveridge Curve--which links the number of job openings to the unemployment rate--shows no signs at all of returning to normal.

14 September 2017 August Core CPI Set to Mean-Revert to 0.2% as Temporary Factors Fade? (My Publications)

After five straight undershoots to consensus, with the core CPI averaging monthly gains of just 0.05%, investors are asking hard questions about the Fed's belief -- and ours -- that core inflation is headed towards 2% in the not-too-distant future.

7 February 2017 Q1 Growth to Disappoint, Again? (My Publications)

The obvious answer to the question posed in our title is that it's far too early to tell what will happen to first quarter growth. More than half the quarter hasn't even happened yet, and data for January are still extremely patchy, with no official reports on retail sales, industrial production, housing, capex, inventories or international trade yet available. For what it's worth, the Atlanta Fed's GDPNow model signals growth of 3.4%, though we note that it substantially overstated the first estimate of growth in the fourth quarter.

13 Oct. 2015 Could Higher Rates Really "Spur" Faster Economic Growth? (My Publications)

What should we make of the view of Fed hawks, set out with admirable clarity in the September FOMC minutes, that higher rates "might spur rather than restrain economic activity"? The core story behind this counter-intuitive proposal is the idea that zero rates send a signal to the private sector that the Fed is deeply worried about the state of the economy.

9 Mar. 2015 Surging Job Gains, and Sub-Nairu Unemployment to Force June Hike (My Publications)

In the wake of the February employment report, the implied probability of a June rate hike, measured by the fed funds future, jumped to 89% from 71%. The market now shows the chance of a funds rate at 75bp by the end of the year at just over 60%. That still looks low to us, but it is a big change and we very much doubt it represents the end of the shift in expectations.

12 October. 2016 After High Volatility in Q4, LatAm Currencies Will Strengthen in 2017 (My Publications)

Investors will increase their focus on exchange rates as the US presidential election and the Fed's next rate hike approach. Markets are becoming concerned that a surge in the USD could trigger another spike in LatAm currency volatility, depressing the good year- to-date performance of most local market assets.

13 July 2017 Yellen Expects the Labor Market to Tighten Further, and Rates to Rise (My Publications)

Chair Yellen broke no new ground in her Testimony yesterday, repeating her long-standing view that the tightening labor market requires the Fed to continue normalizing policy at a gradual pace.

13 July. 2015 Dull Yellen Testimony Given Greek Story - then Back to Labor Data? (My Publications)

We expect Greece to do what it needs to do by Wednesday to secure its third bailout, and, judging by her speech in Cleveland last Friday, so does the Fed Chair. It's always risky to assume blithely that European politicians will do the right thing in the end, and they seem absolutely determined to humiliate Greece before writing the checks, but a completed deal is the most likely outcome.

13 June. 2016 Banxico's Dilemma: Help the Recovery or Support the MXN? (My Publications)

Markets are still discounting Banxico rate increases in the near term, despite the fact that Mexico's inflation is under control. Unless the MXN goes significantly above 18.7 per USD in the near term, or activity accelerates, we see little scope for rate increases until after the Fed hikes. After May's soft U.S. payrolls, and in light of the economic and financial risk posed by the U.K. referendum, we think a hike this week is unlikely.

25 June. 2015 When Will Small Firms Run Out of Labor Market Insiders to Hire? (My Publications)

The high and rising proportion of small businesses reporting difficulty in filling job openings is perhaps the biggest reason to worry that the pace of wage increases could accelerate quickly. If they pick up too far, the Fed's intention to raise rates at a "gradual" pace will be upended. The NFIB survey of small businesses--mostly very small--shows employers are having as much trouble recruiting staff as at the peak of the boom in 2006.

29 Feb. 2016 Core PCE Inflation Will Breach the Target This Year, Two Years Early (My Publications)

When we argue that the Fed will have to respond to accelerating wages and core prices by raising rates faster than markets expect, a frequent retort is that the Fed has signalled a greater tolerance than in the past for inflation overshoots.

22 June. 2016 No Real Change from Yellen, but Acknowledgement of Other Views (My Publications)

Dr. Yellen's Testimony yesterday was largely a cut-and-paste job from the FOMC statement last week and her remarks at the press conference. The Fed's core views have not changed since last week, unsurprisingly, and policymakers still expect to raise rates gradually as inflation returns to the target, but will be guided by the incoming data.

17 Sept. 2015 No rate hike today - December a better bet than October? (My Publications)

We expect the Fed not to raise rates today. In the eyes of the waverers who will need to change their minds in order to trigger action, the latest data-- especially wages--do not make a compelling case for immediate action, and the obvious fragility of markets strengthens the case for doing nothing today. This is a Fed which in recent years has greatly preferred to err on the side of caution. With no immediate inflation threat, the waverers and the doves will take the view that the cost of delaying the first move until October or December is small. As far as we can tell, they are the majority on the committee.

22 Dec. 2014 - Don't Hold Your Breath Waiting for the Great Housing Rebound (My Publications)

Fed Chair Yellen said in her press conference last week that she has "...been surprised that housing hasn't recovered more robustly than it has. In part I think it reflects very tight credit--continuing tight credit conditions for any borrower that doesn't have really pristine credit... my hope is that that situation will ease over time".

22 Apr. 2016 Jobs Data Suggest--But Don't Guarantee Faster Q2 Growth (My Publications)

Looking back at the numbers over the past few weeks, it is pretty clear that the gap between the strong payroll reports and the activity data widened to a chasm in the first quarter. We now expect GDP growth of about zero--the latest Atlanta Fed estimate is +0.3% and the New York Fed's new model points to 0.8%--but payrolls rose at an annualized 1.9% rate.

22 Mar. 2016 The Upturn in Core Inflation is Real - Don't Focus on the Noise (My Publications)

We pointed out in yesterday's Monitor that Fed Chair Yellen appears to be putting a good deal of faith in the idea that the recent upturn in core inflation is temporary. She argued that "some" of the increase reflects "unusually high readings in categories that tend to be quite volatile without very much significance for inflation over time".

20 Oct. 2015 Could the Terminal Funds Rate be Much Higher Than Markets Think? (My Publications)

In the September forecasts, the median forecast of FOMC members for the long-term fed funds rate was 3.5%. Their long-term inflation forecast is 2%-- it has to be 2%, otherwise they would be forecasting permanent failure to meet their policy objectives -- implying a real rate of 1.5%. This is well below the long-run average; from 1960 through 2005, the real funds rate--the nominal rate less the rate of increase of the PCE deflator--averaged 2.4%.

21 Apr. 2016 Further Evidence that the Manufacturing Rollover is History? (My Publications)

The recent sharp, if not startling, upturn in the regional manufacturing surveys should continue today with the release of the Philadelphia Fed report. The survey is constructed in the same way as the more volatile Empire State, which has rocketed in the past few months, and the headline indexes follow similar trends, as our first chart shows.

18 Mar. 2015 Tough times for Colombia: Falling Oil Prices and COP Depreciation (My Publications)

Colombia was the fastest growing economy in LatAm last year but it faces major challenges. The collapse of oil prices--which account for about half of exports--the COP depreciation, rising inflation and Fed's impending monetary policy normalization, are dragging down economic activity and damaging confidence.

17 March 2017 February's Manufacturing Data Flattered by Warm Weather? (My Publications)

The latest survey evidence strongly supports our view that momentum is building in the industrial economy, but the official production data continue to lag. Yesterday's March Philly Fed survey was remarkably strong, with the correction in the headline sentiment index -- inevitable, after February's 33-year high -- masking increases in all the subindexes.

21 September. 2016 No Hike Today, but the Door Will be Left Wide Open (My Publications)

We would be very surprised if the Fed were to raise rates today. The Yellen Fed is not in the business of shocking markets, and with the fed funds future putting the odds of a hike at just 22%, action today would assuredly come as a shock, with adverse consequences for all dollar assets.

18 November. 2016 Yellen Still Thinks Inflation Will Hit the Target in Two Years. Hmm. (My Publications)

Fed Chair Yellen's Testimony yesterday pretended the election hadn't happened, and ignored the incoming administration's plans for a huge fiscal stimulus. She did address the issue under questioning, though, pointing out that fiscal stimulus could have inflationary consequences and that the Fed will have to factor-in to its decisions whatever Congress decides to do to taxes and spending.

21 June 2017 Q3 LatAm FX Will be Driven by Fundamentals and Commodities (My Publications)

LatAm investors' concerns about U.S. monetary policy expectations and the broad direction of the USD should on the back burner until the Fed hikes again, likely in September. This will leave room for country-specific drivers to take centre stage. That should support Mexico's MXN, which already has risen 14% year-to-date against the USD, erasing its losses after the US election last November.

21 February 2017 Wages Don't Necessarily Lead Inflation, but Unit Labor Costs do (My Publications)

Fed Chair Yellen said something which sounded odd, at first, in her Q&A at the Senate Banking Committee last Tuesday. It is "not clear" she argued, that the rate of growth of wages has a "direct impact on inflation".

18 Mar. 2015 "Patient" to go, thanks to better growth, Labor market forecasts (My Publications)

We expect the Fed to drop "patient" from its post-meeting statement today, paving the way for a rate hike in June, data permitting. And the data will permit, in our view, despite what seems to have been a long run of disappointing numbers, and the likelihood that inflation will fall further below the Fed's 2% informal target in the near-term.

18 July. 2016 Core Inflation is Grinding Slowly Higher, but Bigger Risks Ahead (My Publications)

Trouble is brewing in the core inflation data, despite the benign-looking 0.17% increase in the June report, released Friday. If you annualize that rate indefinitely, core inflation will reach a steady state of 2.1%, so the Fed never needs to raise rates. Alas this only makes sense if you think that single monthly CPI numbers tell the whole truth, and that the fundamental forces acting on inflation are stable. Neither of these propositions is remotely true.

18 July 2017 Will Foreign Trade be a Drag on Second Quarter GDP Growth? (My Publications)

Markets usually ignore the monthly import price data, presumably because they are far removed, especially at the headline level, from the consumer price numbers the Fed targets.

18 August. 2016 What are the Chances of 4%-plus Growth in the Third Quarter? (My Publications)

The latest model-based third quarter GDP forecast from the Atlanta Fed is 3.6%, well above the 2.5% consensus forecast reported by Bloomberg. We are profoundly skeptical of so-called "tracking models" of GDP growth, because they are based mostly on forecasts and assumptions until very close to the actual GDP release.

21 November. 2016 The Inflation Threat from Wages is Rising (My Publications)

Last week, the Atlanta Fed updated its median hourly earnings series with new October data, showing wage growth accelerating to an eight-year high of 3.9%. That's a full percentage point higher than the increase in this measure of wages in the year to October 2015, and it follows a spring and summer during which wage growth appeared to be topping-out at just under 3½%.

21 March 2017 The Debt Ceiling is Back, but no Crisis Likely Until the Fall (My Publications)

The federal debt ceiling was re-imposed last week, with no fanfare, and no reaction in the markets. All eyes were focussed instead on the Fed's rate hike and Chair Yellen's press conference.

18 September 2017 How it Could all go Wrong for U.S. Markets, and Quickly (My Publications)

For the record, we think the Fed should raise rates in December, given the long lags in monetary policy and the clear strength in the economy, especially the labor market, evident in the pre-hurricane data.

20 Mar. 2015 Earnings and Treasuries at Risk, but the ECB's QE is a Wild Card (My Publications)

Under normal circumstances, we would have no hesitation calling for substantially higher long Treasury yields and a lower earnings multiple as the Fed raises rates. History tells us that you fight the Fed at your peril, as our first two charts show.

20 Jan. 2015 - Wage Gains Will be Slowed by Low CPI Inflation, but Not by Much (My Publications)

We have been hearing a good deal recently about the risk that the plunge in headline inflation will feed back into the labor market, keeping the pace of wage gains lower than they would otherwise have been and, therefore, slowing the pace of Fed tightening.

23 Nov. 2015 How to Scare Yourself Over the U.S. Inflation Outlook (My Publications)

Should you be feeling in the mood to panic over inflation risks--or more positively, benefit from the markets' underpricing of inflation risks--consider the following scenario. First, assume that the uptick in wages reported in October really does mark the start of the long-awaited sustained acceleration promised by a 5% unemployment rate and employers' difficulty in finding people to hire. Second, assume that the rental property market remains extremely tight. Third, assume that the abrupt upturn in medical costs in the October CPI is a harbinger o f things to come. And finally, assume that the Fed hawks are right in their view that the initial increase in interest rates will--to quote the September FOMC minutes--"...spur, rather than restrain economic activity". Under these conditions, what happens to inflation?

16 May. 2016 What Went Wrong With the Rising Yield Story? (My Publications)

Back in September, after the Fed decided to hold fire in the wake of market turmoil, we expected rates to rise in December and again in March. We forecast 10-year yields would rise to 2.75% by the end of March. in the event, the Fed hiked only once, and 10-year yields ended the first quarter at just 1.77%. So, what went wrong with our forecasts?

19 May 2017 Expect a Hike on June 14 Unless Financial Conditions Tighten, a Lot (My Publications)

The probability of a rate hike on June 14, as implied by the fed funds future, has dropped to 90%, from a peak of 99% on May 5.

25 April 2017A Government Shutdown Would Say More About Politics Than Economics (My Publications)

A shutdown of the federal government, which could happen as early as this weekend, is a political event rather than a macroeconomic shock. But if it happens--if Congress cannot agree on even a shortterm stop-gap spending measure in order to keep the lights on after the 28th--it would demonstrate yet again that the splits in the House mean that the prospects of a substantial near-term loosening of fiscal policy are now very slim.

16 September. 2016 Something Bad Happened to Industry in August, Will it Last? (My Publications)

We have not been expecting the Fed to raise rates next week, and yesterday's data made a hike even less likely. The September Philly Fed and Empire State surveys were alarmingly weak everywhere except the headline level, and the official August production data were grim.

24 Feb. 2015 Labor Data Set to Change Yellen's Tone at Today's Testimony? (My Publications)

Fed Chair Yellen is a committed believer in the orthodox idea that inflation is largely a cost-push phenomenon, and that the most important cost, by far, is labor. So in order to predict what Dr. Yellen might say about the outlook for Fed policy in her Testimony today--beyond the language of the January FOMC statement--we have to take a view on her assessment of the state of the labor market.

17 Dec. 2014 - Time Runs Out for (My Publications)

We think the FOMC's announcement this afternoon will not include the phrase "considerable time", signaling that the first rate cut will come at or before the middle of next year. At the same time, the Fed's new forecasts likely will show the unemployment rate falling into the Fed's estimated Nairu range this year, rather than the spring of 2016, as implied by their September forecasts.

25 Feb. 2015 Yellen Bullish on Growth and Jobs - "Patient" Set to Go in March? (My Publications)

Chair Yellen's Testimony sought clearly to tell markets that the Fed has upgraded its view on growth, and the state of the labor market. After reading the first few paragraphs, which focussed clearly on the good news, though peppered with the usual caveats, the door was open for the section on policy to signal unambiguously that the Fed is close to its first tightening.

25 August 2017 Yellen to Talk on Financial Stability, But Might Refer to Policy too (My Publications)

Fed Chair Yellen speaks at Jackson Hole today, at 10:00 Eastern. Her topic is billed as "financial stability", but that does not necessarily preclude remarks on the outlook for the economy and policy.

24 June. 2016 Brexit Implications for the U.S: No Immediate Fed Easing (My Publications)

The U.K.'s unexpected vote for Brexit means a stronger dollar for the foreseeable future, a sharp though likely containable drop in U.S. stock prices, and a further delay before the Fed next raises rates. The vote does not necessarily mean the U.K. actually will leave the EU, because the policy choices now facing leaders of Union have changed dramatically. An offer of substantial concessions on the migration issue--the single biggest driver of the Leave vote-- might be enough to trigger a second referendum, but this is a consideration for another day.

NEW YORK TIMES - Federal Reserve Won't Raise Interest Rates Before June, at Earliest (News and Media)

The Federal Reserve kept its options open on Wednesday, signaling that it would not raise short-term interest rates any earlier than June, while leaving unresolved how much longer it might be willing to wait before lifting its benchmark rate from near zero, where the central bank has held it for more than six years

13 March 2017 Will the Labor Data Push the Fed to Hike Again in June? (My Publications)

With rates now certain to rise this week, the real importance of the employment picture is what it says about the timing of the next hike. To be clear, we think the Fed will raise rates again in June, and will at that meeting add another dot to the plot, making four hikes this year.

WALL STREET JOURNAL - Economists React to the January Fed Statement: 'The Door is Still Open to a June Hike' (News and Media)

The Federal Reserve said Wednesday it would keep short-term interest rates near zero until at least the middle of the year. The central bank's policy committee also signaled caution about low inflation and nodded to overseas uncertainty by including new language that it would monitor international developments. Here's how economists reacted

13 March 2017 Business as Usual for LatAm Central Banks, Despite the Fed Hike (My Publications)

The Fed rate hike on Wednesday is fully priced in to LatAm markets, so we expect no significant immediate reaction when the trigger is pulled. But as markets gradually come around to our view that future U.S. rate risk is to the upside, markets will come under renewed pressure.

16 December 2016 LatAm Currencies Sell-off Post Fed Hike, but they will Stabilize Soon (My Publications)

LatAm markets reacted relatively well to the Fed's rate hike on Wednesday, which was largely priced-in. The markets' cool-headed reaction bodes well for Latam central banks. But it doesn't mean that the region is risk-free, especially as Mr. Trump's inauguration day draws near.

9 Nov. 2015 Fed Set to Hike in December, and then Faster than Markets Expect (My Publications)

At a stroke, the October payroll report returned the short-term trend in payroll growth to the range in place since 2011, pushed the unemployment rate into the lower part of the Fed's Nairu range, and lifted the year-over-year rate of growth of hourly earnings to a six-year high. The FOMC has never quantitatively defined what it means by "some further improvement in the labor market", its condition for increasing rates, but if the October report does not qualify, it's hard to know what might fit the bill. We expect a 25bp increase in December.

BLOOMBERG - And Now It's Time to Talk About the Fed (News and Media)

With today's jobs report confirming a strong labor market recovery, it's time to turn our attention back to the Fed

15 February 2017 Yellen Says no "Active" Balance Sheet Management from the Fed (My Publications)

Fed Chair Yellen delivered no great surprises in her semi-annual Monetary Policy Testimony, though she certainly was clear on her attitude to the balance sheet. The Fed does not want to "...use the balance sheet as an active tool of monetary policy."

4 November. 2016 Markets Stress in LatAm Increases as Fed and U.S. Election Loom (My Publications)

LatAm markets and central banks have been paying close attention to developments in the U.S. The FOMC left rates on hold on Wednesday, as expected, but underscored its core view that inflation will rise in the medium-term, requiring gradual increases in the fed funds rate.

08 Feb. 2016 If the Fed Focuses on Wages, They'll Hike in March (My Publications)

The Fed's decisions over the next few months hinge on the relative importance policymakers place on the apparent slowdown in payroll growth and the unambiguous acceleration in wages. We qualify our verdict on the payroll numbers because the January number was very close to our expectation, which in turn was based largely on an analysis of the seasonals, not the underlying economy.

15 December 2016 Congress, Growth and Inflation Will Determine What the Fed Does Next (My Publications)

The Fed's unanimous vote for a 25bp rate hike was overshadowed by the bump up in the dotplot for next year, with three hikes now expected, rather than the two anticipated in the September forecast. Chair Yellen argued the uptick in the rate forecasts was "tiny", but acknowledged that some participants moved their forecasts partly on the basis that fiscal policy is likely to be eased by the new Congress.

BLOOMBERG - Pantheon Chief Economist Worries Wages May Pressure Fed (News and Media)

Ian Shepherdson, chief economist at Pantheon Macroeconomics, discusses the impact of improving wage growth and inflation on the Federal Reserve ahead of today's February jobs report. He speaks on "Bloomberg Surveillance."

BLOOMBERG - Are Economic Indicators Pointing to a Fed Rate Hike? (News and Media)

Chief U.S. Economist Ian Shepherdson on the Fed

BLOOMBERG - Fed May Bring Hot, Volatile Summer, Says Shepherdson (News and Media)

Ian Shepherdson, founder at Pantheon Macroeconomics Ltd., discusses the Federal Reserve's rate hike pattern and how it can provide a summer surprise to markets. He speaks with Bloomberg's Mark Barton on "Bloomberg Surveillance."

CNBC - Fed will hike rates in June, regardless of jobs data (News and Media)

Ian Shepherdson, chief economist at Pantheon Macroeconomics, speaks about how the U.S. Federal Reserve will react to the latest jobs data.

BLOOMBERG - Shepherdson: Fed at 2% Next Year on Five Rate Hikes (News and Media)

Ian Shepherdson, founder at Pantheon Economics, discusses rising U.S. inflation expectations and his outlook for the Federal Reserve in response to President-Elect Donald Trump's economic plan. He speaks on "Bloomberg Surveillance."

NEW YORK TIMES - Fed Might Not Have the Luxury of Slow and Steady Rate Increases (News and Media)

Chief U.S. Economist Ian Shepherdson on U.S. interest rates

MARKET WATCH - Fed will be scrambling to catch up with improving economy, forecaster says (News and Media)

Ian Shepherdson, chief economist for Pantheon Macroeconomics is the winner of the MarketWatch Forecaster of the Month award for June.

Bloomberg - How Fed Rate Hike Messaging Impacts the Economy (News and Media)

Chief U.S. Economist Ian Shepherdson on Bloomberg Surveillance

CNBC - Fed hike hint surprises economist (News and Media)

Chief U.K. Economist Ian Shepherdson on Brexit risk to a June rate hike

NEW YORK TIMES - Fed Still Looking at Raising Rates This Year, Minutes Show (News and Media)

Ian Shepherdson comments after FOMC Minutes release yesterday

TELEGRAPH - Blistering US spending growth puts Fed on track for September rate hike (News and Media)

Chief US economist Ian Shepherdson on US Consumer Spending

22 May 2017 Have Eurozone Investors Lost Their Appetite for Foreign Debt? (My Publications)

The Eurozone's current account surplus remained close to record highs at the end of Q1, despite dipping slightly to €34.1B in March, from a revised €37.8B in February. A further increase in the services surplus was the key story.

22 June. 2015 Twin Disaster for Brazil As Inflation Rises and the Recession Deepens (My Publications)

In recent weeks Brazilian central bank officials have reinforced their message that they will continue fighting inflation with "determination and perseverance". CPI inflation is failing to subside, at least at the headline level, where the latest readings are very disappointing, and expectations have remained stubbornly high. And the BRL has fallen 13% year-to-date, posing further inflation threats ahead. All these factors mean that the BCB will increase its main interest rate yet again in July.

21 September 2017 The FOMC is not Deterred by the Hurricanes, Expect a December Hike (My Publications)

The FOMC's view of the economic outlook and the likely required policy response, set out in yesterday's statement and Chair Yellen's press conference, could not be clearer.

21 October. 2016 Government Spending Higher Next Year? (My Publications)

It has become pretty clear over the past couple of weeks that Hillary Clinton will be the next president, so it's now worth thinking about how fiscal policy will evolve over the next couple of years.

21 Sept. 2015 Don't Focus on Industry - The U.S. is a Domestic Services Economy (My Publications)

The economy is bifurcating. Manufacturing is weak, and likely will remain so for some time, though talk of recession in the sector is overdone. Even more overdone is the idea that the softness of the industrial sector will somehow drag down the rest of the economy, which is more than seven times bigger.

21 September 2016 A Reverse Twist by the BOJ would move EZ bond markets (My Publications)

Financial markets in the Eurozone will be pushed around by global events today. The Bank of Japan kicks off the party in the early hours CET, and the spectrum of investors' expectations is wide.

21 September 2017 August's Jump in Retail Sales Just Looks Like a Flash in the Pan (My Publications)

Retail sales increased by 1.0% month-to-month in August, exceeding our no-change forecast and spurring markets to price-in a 65% chance that the MPC will raise interest rates at its next meeting on November 2, up from 60% beforehand.

22 Jan. 2015 Should We Be Scared by the Flattening Curve? (My Publications)

The flattening of the curve in recent months has been substantial, but in our view it is telling us little, if anything, about the outlook for growth. More than anything else, investors in longer Treasuries care about inflation, and the likely path of headline inflation clearly has been lowered by the plunge in oil prices.

23 Feb. 2015 Mexico's GDP Rising at the Fastest Pace in Two Years - More to Come? (My Publications)

Punished by the global economic slowdown depressing commodity prices, the Mexican economy is now making a gradual comeback, thanks to the continuing strength of its main trading partner, increasing public expenditure on key infrastructure projects, and accommodative monetary policy.

25 October. 2016 Consumers Confidence is High, but Expect an October Correction (My Publications)

Recent consumer confidence numbers have been strong enough that we don't need to see any further increase. The expectations components of both the Michigan and Conference Board surveys are consistent with real spending growth of 21⁄2-to- 3%, which is about the best we can expect when real income growth, after tax, is trending at about 21⁄2%.

25 May 2017 Balance Sheet Run-off set to Start in the Fall, but Slowly (My Publications)

The FOMC minutes confirmed that most FOMC members were not swayed by the weak-looking first quarter GDP numbers or the soft March core CPI. Both are considered likely to prove "transitory", and the underlying economic outlook is little changed from March.

25 August. 2015 The Stock Drop is Unwelcome, but the Market is not the Economy (My Publications)

If you want to know what's going to happen to the real economy over, say, the next year, don't look to the stock market for reliable clues. The relationship between swings in stock prices over single quarters and GDP growth over the following year is nonexistent, as our next chart shows.

21 Oct. 2015 Are Payrolls Slowing Because the Pool of Labor Has Evaporated? (My Publications)

One of the possible explanations for the slowdown in payroll in growth in recent months is that the pool of labor has shrunk to the point where employers can't find the people they want to hire. That's certainly one interpretation of our first chart, which shows that the NFIB survey's measure of jobs-hard-to-fill has risen to near-record levels even as payroll growth has slowed.

25 Sept. 2015 Mexico's Recovery Still in Place, And Brazil's Woes Deepening (My Publications)

The state of the Mexican economy is still favorable, despite the slowdown over the last few quarters. This week, the IGAE economic activity index--a monthly proxy for GDP--rose 2.0% year-over-year in July, a relatively solid pace, but down from 3.2% in June, and 2.6% in the first half. All these data suggest that economic activity failed to gather momentum at the beginning of Q3 after a disappointing first half of the year.

26 June 2017 Markets are Telling Themselves a Story, Shame it's a Fairytale (My Publications)

The core economic narrative in U.S. markets right now seems to run something like this: The pace of growth slowed in Q1, depressing the rate of payroll growth in the spring. As a result, the headline plunge in the unemployment rate is unlikely to persist and, even if it does, the wage pressures aren't a threat to the inflation outlook.

26 August. 2016 No Clear Steer Likely From Yellen Today, After the Spring Debacle (My Publications)

Chair Yellen's speech at Jackson Hole at 10am Eastern time today has the potential to move markets substantially, but that's not our core expectation. It's more likely, we think, that Dr. Yellen will stick to the core FOMC view, which remains that "only gradual increases" in rates will be required, and that rates are "likely to remain, for some time, below levels that are expected to prevail in the longer run".

25 September 2017 Oil Output has Already Rebounded from the Harvey Hit (My Publications)

The rising trend in U.S. oil production was interrupted only briefly by the hurricanes.

25 August 2017 Mexico's Mid-August Inflation Surprise is Nothing to Worry About (My Publications)

Mexico's inflation has been LatAm's odd one out over the last few years. In the decade through 2014, Mexico's inflation rate was broadly in sync with those of its regional fellows, as shown in our first chart.

24 November. 2016 EZ PMIs Rise Further in November- The Outlook is Good for Q4 GDP (My Publications)

The PMIs are telling an increasingly upbeat story for the EZ economy in Q4. The composite PMI in the euro area rose to an 11-month high of 54.1 in November, from 53.3 in October. The uptick was driven by strong new business growth across all private sectors, and employment also increased in response to higher work backlogs.

22 Sept. 2015 Nominal Retail Sales Set to Slow Further, Thanks to the Dollar (My Publications)

The rate of growth of chain store sales has levelled off in recent months, after slowing dramatically in the first four months of this year, almost certainly in response to falling prices for dollar-sensitive goods like household electronics. In the fourth quarter of last year, the Redbook recorded same-store sales growth averaging 4.3%, but that has slowed to a 1-to-2% range since April.

22 Oct. 2015 Markets Will Have to Settle for Just Dovish ECB Rhetoric Today (My Publications)

Investors looking for more QE and rate cuts will be disappointed by ECB inaction today. We think the Central Bank will keep its main interest rates unchanged, and also maintain the pace of asset purchases at €60B a month. We do, however, look for a slight change in language, hinting that QE is likely to continue beyond September next year.

22 May 2017 What Does the Path to the Recession of 2019 Look Like? (My Publications)

In recent years only one event has made a material difference to the growth path of the U.S. economy, namely, the plunge in oil prices which began in the summer of 2014. The ensuing collapse in capital spending in the mining sector and everything connected to it, pulled GDP growth down from 2½% in both 2014 and 2015 to just 1.6% in 2016.

22 September 2017 Don't Expect a Giveaway Budget, Despite low Borrowing this year (My Publications)

Public borrowing was below consensus expectations in August, fuelling speculation that the Chancellor might pare back the remaining fiscal tightening in the Autumn Budget on November 22.

26 Jan. 2015 Banxico on Hold, Thanks to Slowing Inflation--But No Easing (My Publications)

Mexican inflation fell sharply in the first two weeks of January, dipping by 0.2% from two weeks earlier, thanks to lower energy prices and a reduction in long-distance phone tariffs. Telecom reform explains about 15bp of the headline reduction.

24 Feb. 2016 Mortgage Applications are Rising, Despite the Usual February Drop (My Publications)

If, like us, you have been cheered by the upturn in mortgage applications since November, you don't need to worry about the apparent drop in activity in the past couple of weeks. The numbers don't look great: The MBA's index capturing the number of applications for new mortgages to finance house purchase has dropped from a peak of 237.7 in the third week of January--ignoring September's spike, which was triggered by a regulatory change--to 213.3 last week.

23 Nov. 2015 The Challenge of Surging Migration Won't Go Away Soon (My Publications)

The flow of Middle-Eastern refugees taking the treacherous journey towards Europe continues unabated. UNHCR estimates of arrivals through the Western Balkan route--mainly originating from Greece and Serbia--suggest the average daily number of refugees has been stable so far between October and November at about 11,000. These data are very unreliable, but they indicate that the onset of winter on the European continent--and the added risk to migrants with no shelter--will not deter people from attempting the trip to Europe.

23 Jan. 2015 Can Treasuries Focus on the U.S. Economy as Euro Risk Recedes? (My Publications)

The ECB's decision to go all-in and buy sovereign debt has three key consequences for U.S. markets. First, Treasuries will no longer benefit from safe-haven flows, because shorting Eurozone government debt has just become a fantastically risky proposition.

22 May 2017 LatAm Markets Under Renewed Pressure, but Hold on, for Now (My Publications)

LatAm's relatively calm market environment has been thrown into disarray over the last few weeks.New fears of a slowdown in China, political turmoil in the U.S. and, most importantly, the serious corruption allegations facing Brazil's President, Michel Temer, have triggered a modest correction in asset markets and have disrupted the region's near-term policy dynamics.

2 November. 2016 Producer Price Rises Will Bear Down on Domestic Demand (My Publications)

October's Markit/CIPS manufacturing survey indicates that producers are not shying away from passing on to their customers the higher costs stemming from sterling's depreciation.

2 Feb. 2015 Slower Q4 Growth is a Distraction - Labor Data Matter Much More (My Publications)

Don't fret over the slowdown in growth in the fourth quarter. The quarterly GDP data are volatile even after several rounds of revisions, and the advance numbers are full of assumptions about missing trade, inventory and capex data, which often turn out to be wrong.

2 Feb. 2015 Mexico, Colombia and Chile on Hold - Brazil to Keep Tightening (My Publications)

Central banks in Mexico and Colombia kept their main interest rates on hold last week, due to recent volatility in the currency markets. Policymakers acknowledged the downside risks to growth, particularly from low commodity prices, but inflation fears, triggered by currency weakness, mean they will not be able to ease if growth slows.

2 May. 2016 ECI Core Wages Tell the Story Hidden by Calendar Quirks in AHE (My Publications)

For most of the decade since the whole-economy average hourly earnings numbers were first published, the year-over-year rate of increase has run faster than the ECI measure of private sector wages and salaries, excluding incentive-paid occupations. But in the first quarter of this year, the ECI measure rose 2.5% year-over-year, the fastest increase in six years, while hourly earnings rose 2.3%. That difference might not sound like much, but it matters a good deal when put into context.

2 Nov. 2015 Brazil's Central Bank Minutes Underline Policymakers' Problems (My Publications)

Banxico left Mexico's benchmark interest rate at a record low of 3% last week, maintaining its neutral tone and indicating that the balance of risks has worsened for growth, while the risks for future inflation are unchanged. Policymakers acknowledged the external headwinds to the Mexican economy, but underscored that private consumption has gathered strength thanks to improving employment, low inflation, higher overseas remittances, and better credit conditions.

26 May 2017 First Quarter Growth Set to be Revised up, but Data are Very Flawed (My Publications)

We didn't believe the first estimate of Q1 GDP growth, 0.7%, and we won't believe today's second estimate, either. The data are riddled with distortions, most notably the long-standing problem of residual seasonality, which depressed the number by about one percentage point.

2 Nov. 2015 Media and Market Biases Leading Investors up the Wrong Path (My Publications)

We can't recall a time when we have disagreed so strongly with the consensus narrative, in both the media and the markets, about the state of the U.S. economy. We think both investors and the commentariat are too bearish on growth and too complacent about inflation risks, and as a result, insufficiently worried about the speed with which interest rates will rise over the next couple of years.

19 Oct. 2015 Real Wage Gains Signal the True Tightness of the Labor Market (My Publications)

Everyone is familiar by now with the conundrum in the labor market: How come wage gains have barely increased over the past few years even as the unemployment rate has fallen to very low levels, and business surveys scream that employers can't find the people they want? To give just one visual example of the scale of the apparent anomaly, our first chart shows the yawning gap between the headline unemployment rate and the rate of growth of hourly earnings, compared to previous cycles.

19 June. 2015 Core Inflation Steady, for Now, but Watch Out for Accelerating Rents (My Publications)

Core inflation failed in May to record its fifth straight 0.2% increase, but--on the 200th anniversary of the Battle of Waterloo--we are obliged to point out that it was the nearest-run thing you ever saw. As published, the core index rose 0.145%, but favorable rounding--at the fourth decimal place--did the job.

19 Feb. 2016 Weak Manufacturing is a Serious Problem, for Manufacturers (My Publications)

Manufacturing does not consistently lead the rest of the economy. Neither does it consistently lag. On average, turning points in the rates of growth of manufacturing output and GDP are coincident, as our first chart clearly shows. But coincidence is not causality.

19 Feb. 2015 Never Mind the Dovish Minutes, What Does Yellen Think? (My Publications)

It's easy to read the January minutes as the dovish counterpart to a clear hawkish shift in the meeting. The statement, remember, upgraded the growth view to "solid" from "moderate"; it reiterated that the downward inflation shock from energy prices will be "transitory" and it said that the the pace of job growth is now "strong", having previously been "solid".

19 Feb. 2016 What Next for Mexico After the Surprise Rate Hike? (My Publications)

Mexico's central bank, Banxico, capitulated in the face of the rapidly depreciating MXN and unexpectedly increased interest rates by 50bp to 3.75% on Wednesday, following an unscheduled meeting the day before. The decision was a unanimous, brave step, showing that policymakers are extremely worried about the FX sell-off, despite growth still running below potential.

19 January 2017 Core Inflation Pressure Building Slowly, Headline to Jump Further (My Publications)

The solid numbers for December mean that core inflation remains on track to breach 2?-?% this year, though probably not until the summer. Over the next few months, base effects will help to hold the core rate close to the December pace.

19 July. 2016 Why is Homebuilding not Keeping Pace with Demand? (My Publications)

The sustained upturn in mortgage applications since last fall ought to have driven up the pace of new home construction quite sharply. But our first chart shows that single-family building permit issuance--we use permits rather than starts, as they are much less volatile--rose only 8.3% year-over-year in the three months to May, while applications for new mortgages to finance house purchase jumped by 18.8% over the same period.

20 August. 2015 "Most" FOMC Members Think the Time to Hike is "Approaching" (My Publications)

FOMC pronouncements are rarely unambiguous; policymakers like to leave themselves room for maneuver. But when the statement says that "Most judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point" and that only "some" further improvement in labor market conditions is required to trigger action, it makes sense to look through the blizzard of caveats and objections--none of which were new--from the perma-doves.

20 Feb. 2015 Colombia's Strong Domestic Activity is Neutralizing Oil Price Hit (My Publications)

Colombia's oil industry--one of the key drivers of the country's economic growth over the last decade--has been stumbling over recent months, raising concerns about the country's growth prospects. But the recent weakness of the mining sector is in stark contrast with robust internal demand and solid domestic production.

20 October. 2016 Are Jobless Claims Really at a 43-Year Low?  (My Publications)

The recent jobless claims numbers have been spectacularly good, with the absolute level dropping unexpectedly in the past two weeks to a 43-year low. The four-week moving average has dropped by a hefty 14K since late August.

20 Nov. 2015 Will Corporate Yields Become a Good Leading Indicator Again? (My Publications)

In the years before the crash of 2008, if you wanted to know what was likely to happen to the pace of U.S. economic growth, all you needed to know was what happened to corporate bond yields a year earlier. The correlation between movements in BBB industrial yields--not spreads--and the changes in the rate of GDP growth, lagged by a year, was remarkably strong from 1994 through 2008, as our first chart shows. Roughly, a 50 basis point increase in yields could be expected to reduce the pace of year-over-year GDP growth--the second differential, in other words--by about 1.5 percentage points.

20 September. 2016 Homebuilders Need to Catch up to Rising Sales - Expect a Q4 Surge (My Publications)

The information available to date--which is still very incomplete--suggests that new housing construction will decline in the third quarter. This would be the second straight decline, following the 6.1% drop in Q2. We aren't expecting such a large fall in the third quarter, but it is nonetheless curious that housing investment--construction, in other words--is falling at a time when new home sales have risen sharply.

21 August 2017 Growth Momentum and Slow Hikes Means no Recession Until 2019 (My Publications)

We have had something of a rethink about the likely timing of the coming cyclical downturn. Previously, we thought the economy would start to slow markedly in the middle of next year, with a mild recession--two quarters of modest declines in GDP-- beginning in the fourth quarter.

21 July. 2016 Upside Risk for July Existing Home Sales - Price Gains Should Rebound (My Publications)

A very light week for U.S. data concludes today with four economic reports, which likely will be mixed, relative to the consensus forecasts. The recent run of clear upside surprises and robust-looking headline numbers is likely over, for the most part.

21 July 2017 BoJ to Allow Foreign Tightening to Ease Japanese Policy, for now (My Publications)

Governor Kuroda commented yesterday that he doesn't think Japan needs more easing at this stage. If he means that the BoJ does not have to change policy to provide more easing then we think he is right, on two and a half counts. First, Japan is likely to receive a boost under its current framework as external rate rises exceed expectations, driving down the yen.

20 May. 2016 Falling PPI Goods Prices Don't Signal Lower Core CPI Inflation (My Publications)

If you gave us $100, we'd put $90 on inflation, headline and core, being higher a year from now than it is today. Our view, however, is not universally shared, and some commentators continue to argue that the U.S. faces deflation risks. Exhibit one for this view is our first chart, which shows a high correlation between the PPI for finished goods prices and the CPI inflation rate, ex-shelter.

20 June. 2016 Brazil's Macro Conditions are Improving - Rate Cuts During H2? (My Publications)

Brazil's recession carried over into the beginning of Q2, but with diminishing intensity. The IBC-BR economic activity index, a monthly proxy for GDP, fell 5.0% year-over-year in April, up from a revised 6.4% contraction in March. The index's underlying trend has improved in recent months, suggesting that the economy is turning around, slowly.

20 July 2017 The June Housing Starts Rebound is not the Start of a Boom (My Publications)

We would like to be able to argue with conviction that the surge in June housing starts and building permits represents the beginning of a renewed strong upward trend, but we think that's unlikely.

20 January 2017 Mid-month Inflation Data Supports BCB's Front-loading Strategy (My Publications)

Brazilian inflation is off to a good start this year, and we think more good news is coming. The January mid-month IPCA-15 index rose an unadjusted 0.3% month-to-month, a tenth less than expected. This was the smallest gain for January since 1994 and the sixth consecutive month in which the number came in below expectations.

20 July 2017 Today's ECB Meeting Ought to be Snoozer, But Expect Volatility (My Publications)

The ECB is unlikely to make any changes to its policy stance today. We think the central bank will keep its refinancing and deposit rates at 0.00% and -0.4%, respectively, and maintain the pace of QE at €60 per month until the end of the year. We also don't expect any substantial change in the language on forward guidance and QE.

20 July. 2016 How Fast Will Oil Capex Rebound in the Wake of Higher Oil Prices? (My Publications)

We have been arguing for some time that the drag on growth from falling capital spending in the oil sector would fade to nothing in the third quarter, and would then likely be followed by a small increase in the fourth quarter. But we seem to have been too cautious. It now seems much more likely that oil capex will rebound strongly as soon as the third quarter, following the clear upturn in the rig count data produced by Baker Hughes, Inc.

20 June 2017 China Property is Slowing, Prices now Depend on Mortgage Rates (My Publications)

House price inflation in tier-one cities has been crushed by China's most recent monetary tightening. This is a sharp turnaround from the overheating mid-way through last year. Unlike in previous cycles, interest rates are probably more important for house prices than broad money growth.

21 November. 2016 Soft Chilean Data Likely Leading to Rate Cuts Next Year (My Publications)

Chile's central bank left rates unchanged at 3.5% last Thursday, as expected, and maintained its neutral tone. Inflation pressures are easing, economic activity remains sluggish and global risks have increased.

7 July 2017 Upside Risk for Payroll. Despite Soft ADP. Robust AHE a Decent Bet too (My Publications)

ADP's reported 158K increase in private payrolls was very close to our model-based estimate, so it doesn't change our 220K forecast for todays official payroll number, well above the 177K consensus.

7 Apr. 2016 The Oil Industry Won't Disappear - the Contraction Will End Soon (My Publications)

If the current rate of contraction continues, the U.S. onshore oil industry will cease to exist in the third week of January next year. Over the past six weeks, the number of operating rigs has dropped by an average of 8.5, and 362 rigs were running last week. At the peak, in early October 2014--just 18 months ago--the rig count reached 1,609.

6 Oct. 2015 Will the Industrial Slowdown Drag Down the Rest of the Economy? (My Publications)

The elevated September ISM non-manufacturing index reported yesterday--it dipped to 56.9 but remains very high by historical standards--again served to underscore the depth of the bifurcation in the economy. The services sector, boosted by the collapse in gasoline prices and the strong dollar, is massively outperforming the woebegone manufacturing sector.

18 Nov. 2015 Hawks Want to Hike, but What do They Expect From Higher Rates? (My Publications)

At the October FOMC meeting, policymakers softened their view on the threat posed by the summer's market turmoil and the slowdown in China, dropping September's stark warning that "Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term." Instead, the October statement merely said that the committee is "monitoring global economic and financial developments."

8 Apr. 2016 How Far Will the Labor Share in GDP Rise? (My Publications)

As recently as late 2008, the share of employee compensation in GDP was slightly higher than the average for the previous 20 years. But it would be wrong to argue, therefore, that the squeeze on labor is a phenomenon only of the past few years. It's certainly true that labor's share dropped precipitously from 2009 through 2011, and has risen only marginally since then.

8 Dec. 2014 - Falling Unemployment Will Trigger Tightening: Payrolls Will Soar (My Publications)

The first thing to ask after a payroll number far from consensus is whether it is supported by other evidence. We are happy to argue that November's blockbuster report is indeed consistent with a range of other numbers, notwithstanding the unfortunate truth that there are no reliable indicators of payrolls on a month-to-month basis.

8 Apr. 2016 Tame Inflation Pressures Leave Banxico Room to Breathe (My Publications)

Good news keeps on coming from Mexico, and the outlook is still favourable. Overall inflation pressures remain subdued and the domestic economy remains reasonably solid, despite a modest slowdown in recent months. Job creation remains robust, and real wages have been growing at a solid, non-inflationary pace.

6 Nov. 2015 Brazil's Industrial Recession Deepens - Chile's Recovery in Place (My Publications)

Brazil's industrial sector continues to suffer, despite September's report surprising marginally on the upside. Output contracted 1.3% month-to-month in September, after a 0.9% fall in August, pushing the year over-year rate down to -10.9% down from -8.8% in August. This is the biggest drop since April 2009. Output has fallen an eye-popping -7.4% year-to-date, and in the third quarter alone activity contracted by 3.2% quarter-on-quarter, in line with our vie w for a 1.2% contraction in real GDP for the third quarter.

6 May. 2016 Chile's Economy Picks Up in Q1, but no Sustained Acceleration (My Publications)

Economic growth in Chile picked up in Q1, but the recovery remains disappointingly weak, due to both global and domestic headwinds. The latest Imacec index, a proxy for GDP, rose just 2.1% year-over-year in March, slowing from a 2.8% gain in February. Assuming no revisions next month, economic activity rose 1.2% quarter-on-quarter in Q1, better than the 0.9% increase in Q4. These data points to a modest pick-up in GDP growth in Q1, to 1.8% year-over-year, from 1.3% in Q4.

5 May 2017 Payrolls Should Rebound to More than 200K, Wage Gains up too? (My Publications)

If the underlying trend in payroll growth is about 200K, then a weather-depressed 98K reading needs to be followed by a rebound of about 300K in order fully to reverse the hit. But the consensus for today's April number is only 190K, and our forecast is 225K.

5 June. 2015 BCB hikes rates to squeeze inflation and rebuild credibility (My Publications)

Brazil's Monetary Policy Committee--Copom--increased the Selic rate by 50bp to 13.75% on Wednesday, as widely expected. The short statement was unchanged from the previous four meetings, indicating the decision was unanimous and without bias, maintaining uncertainty about the next steps. Many Copom members, especially its President, Alexandre Tombini, have signaled that they intend to persevere in their attempt to bring the inflation rate down to 4.5% by the end of 2016.

6 February 2017 Soft January Hourly Earnings Will Prove Short-Lived (My Publications)

Markets over-reacted to the much smaller-than-expected 0.1% increase in January hourly earnings, in our view. We don't have a full explanation for the shortfall against our 0.5% forecast, but that doesn't make it wise to throw out the baby with the bathwater, making the de facto assumption that wage growth now won't accelerate in the future.

6 July. 2015 Labor Market is Still Tightening, Despite June Payroll Miss (My Publications)

First, a deep breath: June payrolls, with a margin of error of +/-107K, missed the consensus by 10K. Adding in the -60K revisions and the miss is still statistically insignificant. The story, therefore, is that there is no story. Even relative to our more bullish forecast, the miss was just 37K. Nothing bad happened in June. But we hav e to acknowledge that payroll growth has now undershot the pace implied by the NFIB's hiring intentions number--lagged by five months--in each of the past four months. In June, the survey pointed to a 320K jump in private employment, overshooting the actual print by nearly 100K.

6 Mar. 2015 Decent But Unspectacular Job Gains in February? (My Publications)

Our base forecast for today's February payroll number is an unspectacular 220K, though if you twist our arms we'd probably say that we'd be less surprised by a big overshoot to this estimate than an undershoot. The single biggest argument against a big print today is simply that February payrolls have initially been under-reported in each of the past five years and then revised higher.

8 Dec. 2014 The Hunt for Yield is Still On, But it Comes With Higher Risk Next Year (My Publications)

Divergence between central banks and the reach for yield will remain dominant themes for Eurozone fixed income markets next year, but a lot has already been priced in.

8 February 2017 Banxico to Hike Rates Tomorrow, but its Tone Likely Will be Softened (My Publications)

Banxico's likely will deliver the widely-anticipated rate hike this Thursday. Policymakers' recent actions suggests that investors should expect a 50bp increase, in line with TIIE pric ing and the market consensus. The balance of risks to inflation has deteriorated markedly on the back of the "gasolinazo", a sharp increase in regulated gasoline prices imposed to raise money and attract foreign investment.

9 Mar. 2015 Currency Depreciation is Affecting Inflation Expectations in LatAm (My Publications)

Brazil's central bank is in a very delicate situation. The economy is on the verge of another recession, but at the same time the BRL is falling, inflation expectations are rising and the inflation rate is overshooting. Fiscal policy is also tightening to restore macro stability magnifying the squeeze on growth.

9 June. 2016 The Inventory Rundown isn't Over, but the Intensity Will Soon Diminish (My Publications)

The collapse in capital spending in the oil sector last year was the biggest single drag on the manufacturing sector, by far. The strong dollar hurt too, as did the slowdown in growth in China, but most companies don't export anything. Capex has fallen in proportion to the drop in oil prices, so our first chart strongly suggests that the bottom of the cycle is now very near.

9 November. 2016 With Trump the Likely winner, what next for policy and Markets? (My Publications)

The verdict is not yet definitive, but prudence dictates we must now assume victory for Donald Trump. The immediate implication of President Trump is global risk-off, with stocks everywhere falling hard, government bonds rallying, alongside gold and the Swiss franc. The dollar is the outlier; usually the beneficiary when fear is the story in global markets, it has fallen overnight because the risk is a U.S. story.

9 Oct. 2015 FOMC Members Sticking to Previous Positions, Mostly (My Publications)

The FOMC minutes showed both sides of the hike debate are digging in their heels. As the doves are a majority--rates haven't been hiked--the tone of the minutes is, well, a bit do vish. But don't let that detract from the key point that, "Most participants continued to anticipate that, based on their assessment of current economic conditions and their outlook for economic activity, the labor market, and inflation, the conditions for policy firming had been met or would likely be met by the end of the year." Confidence in this view has diminished among "some" participants, however, worried about the impact of the strong dollar, falling stock prices and weaker growth in China on U.S. net exports and inflation.

9 Sept. 2015 Ignore Swings in Random Labor Force Data: Focus on Job Gains (My Publications)

We read after the employment report that the drop in the unemployment rate was somehow not significant, because it was due in p art to a reported 41K drop in the size of the labor force, completing a 404K cumulative contraction over the three months to August. In our view, though, analysts need to take a broader approach to the picture painted by the household survey, which is much more volatile and less reliable than the payroll survey over short periods.

9 Oct. 2015 Three-Speed LatAm Inflation - Brazil And Mexico the Outliers (My Publications)

The big four LatAm economies, Brazil, Mexico, Colombia and Chile, released September inflation this week and the data showed three clear--and contrasting--trends. Inflation is accelerating in the Andes, whereas the headline rate hit another historic low in Mexico. Inflation in Brazil is still the depressing outlier, with annual CPI inflation hovering around 9.5% year-over-year in recent months, well above the rates of its regional peers. But it is close to peaking, at last.

9 July. 2015 Oil Firms' Capex Rollover is Almost Over, Provided Prices Stabilize (My Publications)

After 29 straight weekly declines, the number of oil rigs in operation in the U.S. rose to 640 in the week ended July 2, from 628 the previous week, according to oil services firm Baker Hughes, Inc. If today's report for the week ended July 9 shows the rig count steady or up again, it will b e much easier to argue that the plunge in activity since the peak--1,601 rigs, in mid-September--is now over.

9 Jan. 2015 - Expect Another Robust Payroll Report - Watch Hourly Wages Too (My Publications)

Most of the evidence points to a robust December employment report today, though we doubt the headline number will match the heights seen in November, when the initial estimate showed payrolls up 321K. We look for 275K.

9 August 2017 Productivity Growth Might be Turning up, Labor Costs Subdued (My Publications)

We are a bit more optimistic than the consensus on the question of second quarter productivity growth, but the data are so unreliable and erratic that the difference between our 1.2% forecast and the 0.7% consensus estimate doesn't mean much.

8 Sept. 2015 No Loss of Momentum in August Employment, Despite Headline (My Publications)

The soft-looking August payroll number almost certainly will be revised up substantially, as the readings for this month have been in each of the past six years. Runs of remarkably consistent revisions--from 53K to 104K, with a median of 66K--don't happen by chance very often. A far more likely explanation is that the seasonal adjustments are flawed, having failed to keep up with changes in employment patterns since the crash. If the median revision is a good guide to what happens this year, the August number will be pushed up to 240K, in line with our estimate of the underlying trend and much more closely aligned with the message from a host of leading indicators.

9 Dec. 2014 - NFIB Says Wage Pressure is Rising: ECI Data Seem to Agree (My Publications)

We argued in the Monitor yesterday that the NFIB survey's hiring intentions number is the best guide to the trend in payroll growth a few months ahead. But today's November NFIB report will bring no new information on job growth because the key labor market elements of the survey have already been released.

9 Dec. 2015 Sub-$40 WTI Boosts Consumers' Cashflow - Oil Capex to Fall Further (My Publications)

OPEC's decision at the weekend to turn the oil market into a free-for-all means that the rebound in headline inflation over the next few months will be less dramatic than we had been expecting. Falling retail gas prices look set to subtract 0.2% from the headline index in both November and December, and by a further 0.1% in January. These declines are much smaller than in the same three months a year ago, so the headline rate will still rise sharply, to about 1.3% by January from 0.2% in October, but it won't approach 2% until the end of next year or early 2017,

9 Feb. 2015 Only Brazil Will Have to Hike, Other LatAm Central Banks On Hold (My Publications)

Last week's data supported our view that monetary policy across LatAm will continue to diverge in the short term. Brazil will have to prolong its monetary tightening cycle, while economies such as Colombia and Chile will remain on hold despite the recent slowdowns in their economic cycle.

5 July. 2016 Can We be Sure The Labor Market is Tight Enough to Boost Wage Gains? (My Publications)

We have argued consistently for some time that the next year will bring a clear acceleration in U.S. wage growth, because the unemployment rate has fallen below the Nairu and a host of business survey indicators point to clear upward wage pressures. Nominal wage growth has been constrained, in our view, by the unexpected decline in core inflation from 2012 through early 2015, which boosted real wage growth and, hence, eased the pressure from employees for bigger nominal raises.

5 July 2017 ISM Signals Continued Industrial Recovery, but not a Boom (My Publications)

The June ISM manufacturing index signalled clearly that the industrial recovery continues, with the headline number rising to its highest level since August 2014, propelled by rising orders and production. But the industrial economy is not booming and the upturn likely will lose a bit of momentum in the second half as the rebound in oil sector capex slows.

28 June. 2016 The Case for Stronger U.S. Economic Growth is Still Robust (My Publications)

Difficult though it is to tear ourselves away from Britain's political and economic train-wreck, morbid fascination is no substitute for economic analysis. The key point here is that our case for stronger growth in the U.S. over the next year is not much changed by events in Europe.

28 Jan. 2015 What Happened to December Durable Goods Orders? (My Publications)

We are pretty confident that the reported 3.4% drop in durable goods orders in December, which so spooked the markets yesterday, didn't actually happen.

28 November. 2016 Banxico's Balancing Act is Becoming Harder and More Risky (My Publications)

Banxico's decisions throughout the past year have been guided by external forces, dominated by the persistent decline of the MXN against the USD and its potential impact on inflation. The MXN has fallen by almost 17% year-to-date and has dropped by an eye-watering 37% since 2014.

29 Apr. 2015 Growth in the first quarter, but not much? (My Publications)

The first estimate of Q1 growth will show that the economy struggled in the face of the severe winter and, to a lesser extent, the rollover in capital spending in the oil sector. But the weather hit appears to have been much smaller than last year, when the economy shrank at a 2.1% rate in the first quarter; this time, we think the economy expanded at an annualized rate of 1.1%.

29 Jan. 2016 Will Inventories and Government Hold Q4 GDP Close to Zero? (My Publications)

We expect to learn today that the economy barely grew at all in the fourth quarter. At least, that's what we think the first estimate of growth, due today, will show. This number will then be revised twice over the next couple of months, then again when revisions for the past three years are released in July. Thereafter, the numbers are subject to further annual revisions indefinitely.

29 Apr. 2016 Weak Q1 Growth Won't Persist - Better Data Coming, Soon (My Publications)

The astonishing 86% annualized plunge in capital spending in mining structures--mostly oil wells--alone subtracted 0.6 percentage points from headline GDP growth in the first quarter. The collapse was bigger than we expected, based on the falling rig count, but the key point is that it will not be repeated in the second quarter.

28 August 2017 Expect a Correction in the July Trade Data, but Trends are Favorable (My Publications)

Net foreign trade made a positive contribution of 0.2 percentage points to GDP growth in the second quarter, matching the Q1 performance.

28 April 2017 The Economy Appears to have Stalled in Q1, but Q2 Will be Better (My Publications)

Whatever number the BEA publishes this morning for first quarter GDP growth -- we expect zero -- you probably should add about one percentage point to correct for the persistent seasonal adjustment problem which has plagued the data for many years. Reported first quarter growth has been weaker than the average for the preceding three quarters in 21 of the 31 years since 1985 -- and in eight of the past 10 years.

27 June 2017 Mexican Economic Growth Will be Sustained over the Second Half (My Publications)

Economic activity in Mexico during the past few months has been relatively resilient, as external and domestic threats appear to have diminished.

27 Jan. 2016 FOMC Likely to Warn Again of External Risks, and do... Nothing (My Publications)

Today's FOMC announcement will be something of a non-event. Rates were never likely to rise immediately after December's hike, and the weakness of global equity markets means the chance of a further tightening today is zero.

27 June. 2016 Life After Brexit: LatAm Suffers Higher Volatility, But Will Survive (My Publications)

The U.K.'s unexpected decision to vote to leave the E.U. will have serious ramifications for the global economy, and LatAm economies are unlikely to emerge unscathed. It is very difficult to quantify the short-term effects due to the intricacies of the financial transmission channels into the real economy.

27 May. 2015 Mexico Set for Gradual Improvement After Weak Q1? (My Publications)

Mexico's external accounts remain solid, despite adverse global conditions over the past year. The current account decreased to USD9.5B, or 3.2% of GDP, in the first quarter, just down from 3.3% a year earlier. Shortfalls of USD10.3B in the income account and USD4.7B in goods and services--mostly the latter--were again the key driver of the overall deficit.

28 April 2017 The ECB is Happier about the Economy, But not Inflation (My Publications)

Yesterday's ECB meeting painted a picture of a central bank in wait-and-see mode. The main refinancing and deposit rates were kept at 0.00% and -0.4% respectively, and the marginal lending facility rate also was unchanged at 0.25%.

29 June 2017 GDP Seasonal Adjustment Problems Persist, a Fix is Promised in July (My Publications)

The third estimate of first quarter GDP growth, due today, will not be the final word on the subject. Indeed, there never will be a final word, because the numbers are revised indefinitely into the future.

29 June. 2015 Greece to Dominate Markets - Dollar, Treasuries to Benefit (My Publications)

The Eurozone is on the brink of its first exit this week after the ECB refused to offer incremental emergency liquidity to Greek banks, forcing the start of bank holiday through July 7--two days after next weekend's referendum--and beginning today. We have no doubt that if the banks were to open, they would soon be bust; bank runs have a habit of accelerating beyond the point of no return very quickly.

30 June. 2016 Commodities are Helping LatAm's Recovery - Brexit not a Deal-Breaker (My Publications)

The downturn in LatAm is finally bottoming out, but the economy of the region as a whole will not return to positive year-over-year economic growth until next year. The domestic side of the region's economy is improving, at the margin, thanks mainly to the improving inflation picture, and relatively healthy labor markets.

30 Jan. 2015 Plunging Oil Prices Boost Chile's Consumers - Businesses Still Weak (My Publications)

Chile's economy is showing the first reliable signs of improvement, at last. December retail sales rose 1.9% year-over-year, up from 0.4% in November, indicating that household expenditure is starting to revive, in line with a pick-up in consumer confidence and the improving labor market.

30 Oct. 2015 The Third Quarter ECI is Set to Rebound, but How Far? (My Publications)

We have been asked by a few readers how much confidence we have in our forecast of a 1% rebound in the third quarter employment costs index, well above the 0.6% consensus and the mere 0.2% second quarter gain. The answer, unfortunately, is not much, though we do think that the balance of risks to the consensus is to the upside.

31 August. 2015 Brazil's Recession, Worse Than Feared And No Respite In Sight (My Publications)

Brazil's recession has deepened. Overall, the economy has sunk into its worst slump in six years, and the recovery will be painful and slow. This is not surprising, but the sharper than expected 3% contraction over the first half of the year may have thrown a further bucket of cold water on President Rousseff, whose popularity ratings have fallen to a level not seen since 1992, when President Collor de Mello was forced out of office after being impeached for corruption. Real GDP in Brazil fell 1.9% quarter-on-quarter in Q2, much worse than the downwardly revised 0.7% contraction in Q1.

4 May. 2016 Will the March Easter Depress the April ADP Employment Number? (My Publications)

The official payroll numbers seem not to be consistently affected by seasonal adjustment problems when Easter falls in March, probably because the earliest possible date for the holiday, the 23rd, comes long after the payroll data are captured. The BLS data cover the week of the 12th.

4 Dec. 2015 A Bad Day for ECB Doves - New Policies Fall Short of Expectations (My Publications)

On all accounts, the ECB announced a significant addition to its stimulus program yesterday. The central bank cut the deposit rate by 0.1%, to -0.3%, and extended the duration of QE until March 2017. The ECB also increased the scope of eligible assets to include regional and local government debt; decided to re-invest principal bond payments; and affirmed its commitment to long-term refinancing operations in the financial sector for as long as necessary. The measures were not agreed upon unanimously, but the majority was, according to Mr. Draghi, "very large".

30 Jan. 2015 Downside Risk for Fourth Quarter GDP Growth - Inventories a Risk (My Publications)

We are nervous about the first estimate of fourth quarter GDP growth, due today. The consensus forecast is a decent 3.1%, but we are struggling mightily to get anywhere near that.

30 August. 2016 Strong Consumption Set to Support Robust Third Quarter GDP Growth (My Publications)

In the wake of the robust July data and the upward revisions to June, real personal consumption--which accounts for 69% of GDP--appears set to rise by at least 3% in the third quarter, and 3.5% is within reach. To reach 4%, though, spending would have to rise by 0.3% in both August and September, and that will be a real struggle given July's already-elevated auto sales and, especially, overstretched spending on utility energy.

3 Dec. 2015 Yellen Throws Down the Gauntlet, But Gently, Leaving Get-Outs (My Publications)

Short of saying "We're going to hike rates in two weeks' time", Dr. Yellen's view of the immediate economic and policy outlook, set out in her speech yesterday, could hardly have been clearer. Yes, she threw in the usual caveats: "...we take account of both the upside and downside risks around our projections when judging the appropriate stance of monetary policy", and saying the FOMC will have to evaluate the data due ahead of this month's meeting, but her underlying message was straightforward.

29 June. 2015 Mexican Recovery is Stuttering, but Better Days Ahead? (My Publications)

Mexico's economy hit a sticky patch in the first quarter, with confidence slipping, employment growth slowing and the downward trend in unemployment stalling. Indeed, the headline unemployment rate rose to 4.5% in May from 4.3% in April. The seasonally adjusted rate, though, was little changed at 4.4%, with a stable participation rate.

3 January 2017 Brazil stabilizes while Mexico softens (My Publications)

The data in LatAm have been all over the map in recent weeks. Brazil's cyclical stabilization continues, while Mexican numbers confirm that the economy has come under pressure in recent months.

3 March 2017 Banxico is Facing a Tough Dilemma, but the Copom is Sitting Pretty (My Publications)

Banxico's Quarterly Inflation Report--QIR--for Q4 2016, published this week, confirmed that the monetary authority is concerned about the slowing pace of economic activity and rising inflation pressures. Banxico noted that signs of a recovery have emerged in external demand, but it also pointed out that the Trump administration might impose policies which would hit FDI flows into Mexico.

30 Apr. 2015 FOMC acknowledges slowdown in Q1, but core view unchanged (My Publications)

The FOMC delivered no big surprises yesterday, but seemed keen to make it clear that policymakers are sticking to their core views, despite the slowdown in growth in the first quarter. Unlike the March statement, yesterday's note pointed out that the slowdown came in the winter months, though it did not directly blame the weather for the sluggishness in growth.

26 May. 2015 All Eyes on the U.S. and the FOMC for Next Big Move in the Euro (My Publications)

The euro has so far defied the most bearish forecasters' predictions that it is on track for parity with the dollar. Currencies can disregard long-run parity conditions, however, for longer than most investors can hold positions.

12 September. 2016 Mexico's 2017 Budget Proposals Signal Fiscal Discipline (My Publications)

The Mexican government last week unveiled its 2017 fiscal budget proposal. The plan makes clear that the shocks which have battered the economy and public finances since 2015 will linger in to next year. Mexico's government has been eager to cut spending in recent years.

10 Sept. 2015 Soaring Job Openings Signal Further Labor Market Tightening (My Publications)

We expected a modest correction in the number of job openings in July, following the surge over the previous few months, but instead yesterday's JOLTS report revealed that openings jumped by a mind-boggling 8.1% to a new record high. In the three months to July, the number of openings soared at a 35% annualized rate. As a result, the Beveridge Curve, which compares the number of openings to the unemployment rate, is now further than ever from normalizing after shifting out decisively in 2010.

11 Dec. 2015 Brazil's Economic Woes Deepen as Inflation Hits a 12-Year High (My Publications)

Brazil's inflation rate is in double digits for the first time in 12 years. The benchmark IPCA price index rose 1.0% month-to-month in November, lifting the year-over-year rate to 10.5%, the highest since November 2003. The core IPCA increased 0.7% month-to-month, pushing the year-over-year rate in November up to 8.9% from 8.6% in October.

11 Mar. 2016 Brace for Volatility in the Trade Data as Oil Prices Swing (My Publications)

If Brent oil prices remain at their current $41 through the end of the second quarter--a big ask, we know, but you have to start with something--the average price of petroleum products imported into the U.S. will rise at an annualized rate of about 70% from their first quarter level.

10 May 2017 The Budget Deficit is Rising, even Before any Unfunded Tax Cuts (My Publications)

The CBO reckons that the April budget surplus jumped to about $179B, some $72B more than in the same month last year. This looks great, but alas all the apparent improvement reflects calendar distortions on the spending side of the accounts.

10 March 2017 A Guide to ECB Speak: Getting Better, but We're not Done Yet (My Publications)

The ECB made no major policy changes yesterday. The central bank kept its refinancing and deposit rates unchanged at 0.00% and -0.4% respectively, and the scheduled reduction in the pace of QE to €60B per month was confirmed. The core part of the central bank's language retained its dovish bias.

10 July 2017 PBoC and BoJ Choose Divergent Paths in the Second Half (My Publications)

The two major central banks of Asia have chosen hugely divergent policies. The BoJ has chosen to fix interest rates, while the PBoC appears set on preventing a meaningful depreciation of the currency.

10 July. 2015 In or Out, the Greek Drama Will Reach its Denouement on Sunday (My Publications)

We don't know how Europe will look on Monday. If European officials are to be believed, Greece will either have agreed to bail-out terms to keep it inside the Eurozone, or it will be on its way out. "Deadlines" have come and gone for Greece, but this time really is different, because the banks are bust without further support from the ECB, and that will not be forthcoming without a bail-out deal.

10 June. 2015 Inflation In Mexico Falls Below the Target - No Rush to Increase Rates (My Publications)

Mexico's headline inflation fell to a record low of 2.9% in May, down from 3.1% in April and below the middle of Banxico's inflation target, 2-to-4%, for the first time since May 2005. C ore inflation was unchanged at 2.3% in May; higher services prices were offset by a slowing in the rate of increase of goods prices to 2.4% from 2.7% in April, confirming that the pass-through effect from the MXN's depreciation has been very limited.

11 Mar. 2016 Inflation in Brazil Starts to Slow - Better Odds for Rate Cuts in H2 (My Publications)

Brazil's headline CPI has been well above the upper limit of the BCB's target zone since January 2015. We expect this situation will continue for some time, due to the lagged effect of last year's sharp increases in regulated prices, El Niño, the BRL's sell-off in 2015, and, especially, widespread price indexation.

11 May. 2015 Mexico's Inflationary Pressures Subdued - On Target This Year (My Publications)

Mexico is the only major LatAm economy not struggling with inflation. The headline April CPI fell 0.3% month-to-month, with the year-over-year rate unchanged at 3.1%, in the middle o f Banxico's 2-to-4% target. Inflationary pressures have been broadly absent since the beginning of the year, with the annual core CPI rate slowing to 2.3% in April from 2.5% in March.

13 December. 2016 Today's NFIB Labor Data are not New, but they are Important (My Publications)

The falling unemployment rate and the threat it poses to the inflation outlook mean that the labor market numbers in the NFIB small business survey attract more attention than the other data in the report.

13 July. 2015 A deal inches closer, but the EU is gambling dangerously with Grexit (My Publications)

The draft Eurogroup document circulated Sunday evening indicates that European leaders seemingly are willing to offer Greece a new bailout. But it is conditional on passing required legislation reforming pensions and taxes on Wednesday. A "time-out" from the Eurozone, was discussed as a bizarre alternative, but this would be the equivalent of Grexit and default.

13 May. 2015 Core Sales Should Continue to Recover, but Easter is a Wild Card (My Publications)

We have argued for some time that market disappointment over the recent sluggishness of consumption has been misplaced. In our view, investors have placed too little weight on the impact of the severe winter, and have been too hasty in looking for the impact of the drop in gasoline sales.

12 October. 2016 How Hard Did FOMC Dissenters Push to Hike?  (My Publications)

Today's FOMC minutes will add flesh to the bones of the three dissents on September 21. The FOMC statement merely said that each of the three--Loretta Mester, Esther George and Eric Rosengren--preferred to raise rates by a quarter-point.

12 June 2017 Can Core PCE Inflation Overtake Core CPI Inflation? (My Publications)

For the past six years, the PCE measure of core inflation has undershot the CPI version. The average spread between the two year-over-year rates since January 2011 has been 0.3 percentage points, and as far as we can tell most observers expect it to be little changed for the foreseeable future.

11 May. 2016 Outside the Oil Sector, the NFIB Survey Points to Decent Capex (My Publications)

We're pretty sure our forecast of a levelling-off in capital spending in the oil sector will prove correct. Unless you think the U.S. oil business is going to disappear, capex has fallen so far already that it must now be approaching the incompressible minimum required for replacement parts and equipment needed to keep production going.

11 October. 2016 Unemployment has Stopped Falling, For Now (My Publications)

The single most startling development in the labor market data in recent months is acceleration in labor force growth. The participation rate has risen only marginally, because employment has continued to climb too, but the absolute size of the labor force is now expanding at its fastest pace in nine years, up 1.9% in the year to September.

10 July 2017 Banxico Will Start to Mull Lower Interest Rates Early Next Year (My Publications)

Mexico's underlying inflation pressures and financial conditions are gradually stabilizing. Eventually, this will open the door for rate cuts in order to ease the stress on the domestic economy, particularly capex.

10 Feb. 2015 Small Firms are Back in Business, But They Can't Find Staff (My Publications)

The headline index in today's NFIB small business survey probably won't quite converge with the ISM manufacturing index, but it will come v ery close. To close the gap completely, for the first time since the crash, the NFIB needs to rise to just over 102, from 100.4.

06 Jan. 2016 ADP Likely to Report Slower December Job Gains - Ignore it (My Publications)

None of today's four monthly economic reports will tell us much new about the outlook, and one of them--ADP employment--will tell us more about the past, but that won't stop markets obsessing over it. We have set out the problems with the ADP number in numerous previous Monitors, but, briefly, the key point is that it is generated from regression models which are heavily influenced by the previous month's official payroll numbers and other lagging data like industrial production, personal incomes, retail and trade sales, and even GDP growth. It is not based solely on the employment data taken from companies which use ADP for payroll processing, and it tends to lag the official numbers.

07 Jan. 2016 Uncertainty Over China's Currency Intentions Set to Persist (My Publications)

The 2.4% depreciation of the yuan over the past month has not been quite as big as the 3.0% move on August 11, and it's not a big enough shift to make a material difference to aggregate U.S. export performance. Market nerves, then, seem to us to be largely a reflection of fear of what might come next. China's real effective exchange rate--the trade-weighted index adjusted for relative inflation rates--has risen relentlessly over the past decade, and to restore competitiveness to, say, its 2011 level, would require a 20%-plus devaluation.

08 Jan. 2016 Expect Robust Jobs Data, but Downside Risk for Wages (My Publications)

The underlying trend in payroll growth is running at about 225K-to-250K, perhaps more, and the leading indicators we follow suggest that's a reasonable starting point for our December forecast. The trend in jobless claims is extraordinarily low and stable--the week-to-week volatility is eye-catching, especially over the holidays, but unimportant--and indicators of hiring remain robust. The unusually warm weather in the eastern half of the country between the November and December survey weeks also likely will give payrolls a small nudge upwards, with construction likely the key beneficiary, as in November.

05 Feb. 2016 Downside Jobs Risk as Seasonals, Weather Effects Combine (My Publications)

We are pretty bullish about the prospects for the economy this year, but we try not to let our core view interfere with our take on the individual indicators. And our analysis suggests that the odds strongly favor a "disappointing" headline payroll number today; we have revised down our forecast to 160K from our previous 175K estimate.

04 Jan. 2016 While We Were Out... (My Publications)

...The data were all over the map, with existing home sales plunging while consumer confidence rose; Chicago-area manufacturing activity plunged but national durable goods were flat; real consumption rose at a decent clip but pending home sales dipped again. Markets, by contrast, are little changed from the week before the holidays. What to make of it all?

18 May 2017 Political Uncertainty is set to Plague Markets for Many Months (My Publications)

The turmoil in Washington has begun to hit markets. We don't know how this will end, but we do know that it isn't going away quickly.

04 Jan. 2016 Uncertainty in Brazil Contrasts With Mexico's Benign Outlook (My Publications)

While we were out, Brazil's economic, fiscal and political position continued to deteriorate further. The recession deepened in the fourth quarter, with Brazil's economic activity index surprising yet again to the downside in October, falling for the eight consecutive month. The index fell 0.6% month-to-month and 6.4% year-over-year, the biggest contraction since the index began in 2004. And the prospects for first quarter consumption and industrial output have deteriorated substantially. Unemployment increased further in November, and inflation continues to rise, with the mid-month CPI--the IPCA-15 index-- increasing 1.2% month-to-month in November, after a 0.9% increase in October.

08 May. 2015 Payroll Set to Rebound In April - a Return to the 275K Trend? (My Publications)

In the wake of the soft-looking ADP employment report released on Wednesday, the true consensus for today's official payroll number likely is lower than the 230K reported in the Bloomberg survey. As we argued in the Monitor yesterday, though, we view ADP as a lagging indicator and we don't use it is as a forecasting tool.

1 Apr. 2015 The Dollar is hurting exporters - more pain to come (My Publications)

The easiest way to track the impact of the rising dollar on real economic activity is via the export orders component of the ISM manufacturing survey. We have been profoundly skeptical of the value of the ISM headline index, because it suffers from substantial seasonal adjustment problems, but the export orders index seems not to be similarly afflicted.

10 August 2017 Core PPI Inflation is Still Trending Upwards, Don't Ignore it (My Publications)

The first of this week's two July inflation reports, the PPI, will be released today. With energy prices dipping slightly between the June and July survey dates, the headline should undercut the 0.2% increase we expect for the core by a tenth or so.

10 August. 2015 End of the Tightening Cycle in Brazil, as The Recession Bites? (My Publications)

While we were out, Brazil's Monetary Policy Committee--Copom-- increased the Selic rate by 50bp to 14.25% on July 29th. The short statement indicated that the decision was unanimous and without bias. But it also signaled that the Copom is ready to end the tightening cycle if the data and, especially, the BRL, permit.

10 Dec. 2014 - Mortgage Demand Has Recovered its October Plunge, but Still Low (My Publications)

Demand for new mortgages to finance house purchase has rebounded somewhat in recent weeks, following an alarming dip in the wak e of October's stock market correction. At the low, in the third week in October, the MBA's index of applications volume was at its lowest since mid-February, when the reported numbers are substantially depressed by a long-standing seasonal adjustment problem.

1 November 2016 Will Core PCE Inflation hit 2% This Year? (My Publications)

In the absence of an unexpected surge in auto sales or a sudden burst of unseasonably cold weather, lifting spending on utilities, fourth quarter consumption is going to struggle to rise much more quickly than the 2.1% annualized third quarter increase.

1 May 2017 Ignore the Weak Q1 GDP Numbers -- they Cannot be Trusted (My Publications)

If you apply a seasonal adjustment to a seasonally adjusted series, it shouldn't change. When you apply a seasonal adjustment to the U.S. GDP numbers, they do change. First quarter growth, reported Friday at just 0.7%, goes up to 1.7%, on our estimate.

1 Dec. 2015 Plunging Oil Prices Shift Income to Consumers From Producers (My Publications)

The big story in global macro over the past 18 months or so has been the gigantic transfer of income from oil producers to oil consumers. The final verdict on the net impact of this shift--worth nearly $2T at an annualized rate--is not yet clear, because the boost to consumption takes longer than the hit to oil firms ' capex, which began to collapse just a few months after prices began to fall sharply. But our first chart, which shows oil production by country as a share of oil consumption, plotted against the change in real year-over-year GDP growth between Q2 2014 and Q2 2015, tells a clear story.

1 December. 2016 ISM Set to Show that Manufacturing is Recovering, Albeit Slowly (My Publications)

We have lost count of the number of times the drop in the ISM manufacturing survey, in the wake of the plunge in oil prices, was a harbinger o f recession across the whole economy. It wasn't, because the havoc wreaked in the industrial economy by the collapse in capital spending in the oil sector was contained.

14 February 2017 Yellen to Keep March Open, and Signal Fiscal Easing not Needed (My Publications)

We're not expecting drama from Chair Yellen's semi-annual Monetary Policy Testimony in the Senate today. Dr. Yellen will want to keep alive the idea of a rate hike next month, but she will not signal that action is likely, given the continuing lack of clarity on the path of fiscal policy.

03 October. 2016 ISM Unlikely to Rebound Much, but Manufacturing is Not Shrinking (My Publications)

Today's September ISM manufacturing survey is one of the most keenly-awaited for some time. Was the unexpected plunge in August a one-time fluke--perhaps due to sampling error, or a temporary reaction to the Gulf Coast floods, or Brexit--or was it evidence of a more sustained downshift, possibly triggered by political uncertainty?

17 Dec. 2014 Sentiment Surges, but Russian Rout Forces a Reminder of 1998 (My Publications)

With Russia and some other emerging economies now in full panic mode, the financial market story is sharply divided between two narratives. Either the plunge in global energy prices acts as positive catalyst by boosting real incomes and allowing most central banks to run easier monetary policy or it is a sign that risk assets are about to hit a deflationary wall.

17 Feb. 2015 Falling Goods Prices Do Not Signal Broader U.S. Deflation Risk (My Publications)

Last week's import price data, showing prices excluding fuels and food fell in January for the fourth month, support our view that the goods component of the CPI is set to drop sharply this year.

17 February 2017 Slowing Real Incomes Threaten Spending (My Publications)

The rate of growth of real personal incomes is under sustained downward pressure, slowing to 2.1% year-over-year in December from 3.4% in the year to December 2015. In January, we think real income growth will dip below 2%, thanks to the spike in the headline CPI, reported Wednesday. Our first chart shows that the 0.6% increase in the index likely will translate into a 0.5% jump in the PCE deflator, generating the first month-to-month decline in real incomes since January last year.

17 August 2017 The Manufacturing Recovery Continues, but no Boom in Sight (My Publications)

The elevated readings from the ISM manufacturing survey this year have not been followed by rapid growth in output. The headline ISM averaged 55.8 in the second quarter, a solid if unspectacular reading. But output rose by only 1.2% year-over-year, and by 1.4% on a quarterly annualized basis.

17 Apr. 2015 Core Inflation not yet slowing after energy price collapse (My Publications)

The plunge in gas prices since their peak last summer likely will exert modest downward pressure on core inflation by the end of this year, via reduced costs of production and distribution, but it probably is too soon to start looking for these effects now.

16 Mar. 2016 Central Banks Will Set the Tone for Markets In Coming Days (My Publications)

This week's Monetary Policy Committee meetings in Chile, Mexico and Colombia look set to dominate market events in LatAm. On Friday, we expect Mexico's Banxico to keep rates on hold at 3.75%, after its unexpected 50bp increase in mid-February. At that time, the board cited growing concerns about financial markets, Mexico's weakened currency, and the country's fiscal situation, as reasons for its move.

16 Oct. 2015 Goods Prices Aren't Falling Fast Enough to Offset Services Gains (My Publications)

The strong dollar is pushing down goods prices, but not very quickly. As a result, the sustained upward pressure on rents is gradually nudging core CPI inflation higher. It now stands at 1.9%, up from a low of 1.6% in January, and even relatively modest gains over the third quarter will push the rate above 2% by year-end. We can't rule out core CPI inflation ending the year at a startling 2.3%.

17 January 2017 December Data Understates Core Retail Sales (My Publications)

On the face of it, the December core retail sales numbers were something of a damp squib. The headline numbers were lifted by an incentive-driven jump in auto sales and the rise in gas prices, but our measure of core sales--stripping out autos, gas and food--was dead flat. One soft month doesn't prove anything, and core sales rose at a 3.9% annualized rate in the fourth quarter as a whole.

17 January 2017 Will Brexit and Mr. Trump Dent EZ Exports to the U.S. and the U.K? (My Publications)

Net exports in the euro area likely rebounded in Q4. The headline EZ trade surplus rose to €22.7B in November from €19.7B in October. Exports jumped 3.3% month-to-month, primarily as a result of strong data in Germany and France, offsetting a 1.8% rise in imports. Over Q4 as a whole, we are confident that net exports gave a slight boost to eurozone GDP growth, adding 0.1 percentage points to quarter-on-quarter growth.

17 May 2017 With the MXN Stable, Banxico Likely Won't Hike this Week (My Publications)

Mexico's central bank likely will pause its monetary tightening on Thursday, keeping the main rate at 6.5%. A hike this week would follow five consecutive increases, totalling 350bp since December 2015, when policymakers were first overwhelmed by the MXN's sell-off.

17 October. 2016 Banxico Minutes Confirm that FX Speculation is the Key Rate Threat (My Publications)

Banxico is one of the few central banks in LatAm to have hiked rates in 2016, and we expect it to remain relatively hawkish in the face of external risks.

14 July 2017 The Unwinding of QE Remains a Long Way Off (My Publications)

In an interview with The Times yesterday, MPC member Ian McCafferty--who voted to raise interest rates in June--suggested he also might favour starting to run down the Bank's £435B s tock of gilt purchases soon.

17 Mar. 2016 FOMC Rate Forecasts Rely on Wildly Implausible Inflation Hopes (My Publications)

The FOMC delivered no great surprises in the statement yesterday, but the new forecasts of both interest rates and inflation were, in our view, startlingly low. The stage is now set for an eventful few months as the tightening labor market and rising inflation force markets and policymakers to ramp up their expectations for interest rates.

17 Mar. 2015 Plunging Temperatures Boost Utilities, Depress Manufacturing (My Publications)

The February industrial production numbers were flattered by an enormous 7.3% jump in the output of electricity and gas utility companies, thanks to a surge in demand in the face of the extraordinarily cold weather. February this year was the coldest since at least 1997, when comparable data on population weighted heating degree days begin.

17 July 2017 September Rate Hike Odds Have Fallen, but it's not Over Yet (My Publications)

After four straight sub-consensus core CPI readings, we think the odds now favor reversion to the prior trend, 0.2%, over the next few months.

17 June. 2015 FOMC to Acknowledge Rebound, but Rate Dots Likely Unchanged (My Publications)

The tone of today's FOMC statement likely will be different to the gloomy April missive, which began with a list of bad news: "...economic growth slowed during the winter months, in part reflecting transitory factors. The pace of job gains moderated... underutilization of labor resources was little changed. Growth in household spending declined... Business fixed investment softened, the recovery in the housing sector remained slow, and exports declined."

16 Mar. 2015 Temporary Reversal - Bad Numbers for Mexico, Good for Brazil (My Publications)

Two key points can be extracted from the minutes of the last BCB meeting, when policymakers increased the Selic interest rate by 50bp to 12.75%. First, the bank recognized that the balance of risks to inflation has deteriorated, due to the huge adjustment of regulated prices and the BRL's depreciation, but it specifically referred only to "this year" in the communiqué.

18 Dec. 2015 Should We be Worried by the Rise in the Saving Rate? (My Publications)

We have argued consistently since oil prices first began to fall that U.S. consumers would spend most of their windfall, so real spending would accelerate even as nominal retail sales growth was dragged down by the drop in the price of gas and other imported goods. At the same time, we argued that capital spending in the oil business would collapse, and that exports would struggle in the face of the stronger dollar.

16 June 2017 Housing Construction Should Rebound (My Publications)

We were surprised by the weakness of the April housing starts report; we expected a robust recovery after the March numbers were depressed by the severe snowstorms across a large swathe of the country. Instead, single-family permits rose only trivially and multi-family activity--which is always volatile--fell by 9% month-to-month.

15 Apr. 2015 QE remains uncontested, but will be challenged later this year (My Publications)

We expect the ECB to leave its main interest rates, and the scope and size of QE, unchanged at today's meeting. The governing council will recognize that the cyclical recovery is gathering momentum, but also note that inflation is still uncomfortably low.

15 Dec. 2014 - U.S. Approaching the Monetary Policy Crossing Point (My Publications)

All policymaking is about trade-offs; very few government decisions confer only benefits. Someone, or more likely some group, loses. Monetary policy is no exception to the trade-off rule.

14 September 2017 PBoC Pushes Back on RMB Rise. Stability is Still King, for now (My Publications)

The RMB has risen strongly in recent months, initially with the euro and the yen, but China's currency rose on a trade-weighted basis in August.

14 October. 2016 Mexican Manufacturing is Recovering, But Oil Still a Big Drag (My Publications)

Wednesday's Mexican industrial production report was upbeat for manufacturing, but it revealed that the oil and public construction sectors remain under severe strain.

14 July. 2016 Faster Pay Gains for Job-Switchers Forcing Employers to Pay More (My Publications)

The details of the substantial pay raises being offered to some 18K JP Morgan employees over the next three years are much less important than the signal sent by the company's response to the tightening labor market. In an economy with 144M people on payrolls, hefty raises for JP Morgan employees won't move the needle in the hourly earnings data.

14 March 2017 Small Firms are Happy, but When Will Their Capex Plans Pick up? (My Publications)

Small businesses remain extremely positive about the economy, but some of the post-election gloss appears to be wearing off. To be clear, the headline composite index of small business sentiment and activity in February, due this morning, will be much higher than immediately before the election, but a modest correction seems likely after January's 12- year high.

15 Dec. 2015 Core CPI Inflation to Hit 2% for the First Time Since May 2014 (My Publications)

Falling gas prices will make themselves felt in the November CPI data today, with a likely 4% seasonally adjusted decline enough to subtract 0.2% from the month-to-month change in the headline index. But gas prices plunged by 7.2% in November last year, so in year-over-year terms gas prices will push aggregate headline inflation up. We look for the rate to rise to 0.4%, up from 0.2% in October and zero in September. The same story will play out in January and February too, by which time the headline rate should have risen to 1¼%, assuming a crude oil price of about $35 per barrel.

14 September Weak Wage Figures Point to a Less Hawkish MPC than Markets Expect (My Publications)

Investors anticipate a shift up in the MPC's hawkish rhetoric today. After August's consumer price figures showed CPI inflation rising to 2.9%--0.2 percentage points above the Committee's forecast--the market implied probabilities of a rate hike by the November and February meetings jumped to 35% and 60%, respectively, from 20% and 40%.

16 Feb. 2015 Central Banks in LatAm Concerned about Inflation Pass-Through (My Publications)

Central banks in Chile, Peru, and Mexico hogged the market spotlight last week. Chile left its main interest rate at 3.0% on Thursday, for the fourth consecutive meeting.

15 Jan. 2015 - Falling December Retail Sales no Threat to the Strong Growth Story (My Publications)

We want to be very clear about the terrible-looking December retail sales numbers: The core numbers were much less bad than the headline, and there is no reason to think the dip in the core is anything other than noise.

16 January 2017 Inflation Pressure Remains High in Argentina, but Will Fade This Year (My Publications)

Inflation pressure remained relatively high in Argentina last year, due mostly to the legacy of the Kirchner era. But we think inflation will ease this year, given the lagged effects of the recession and the fiscal consolidation.

16 Dec. 2014 - Industrial rebound continues, despite the plunging Empire State (My Publications)

You'd have to be very brave to take the weakness of yesterday's Empire State survey more seriously than the strong official industrial report published 45 minutes later. The hard data showed industrial production up 1.3% month-to-month, and only two tenths of that gain was explained by the cold weather, which drove up utility energy output.

16 December 2016 Core Inflation has Levelled-Off, but Only Temporarily, Headline to Soar (My Publications)

A casual glance at our first chart, which shows the headline and core inflation rates, might lead you to think that our fears for next year are overdone. Core inflation rose rapidly from a low of 1.6% in January 2015 to 2.3% in February this year, but since then it has bounced around a range from 2.1% to 2.3%.

15 July. 2015 Should We Worry About Slower Retail Sales Growth? (My Publications)

Whichever way you choose to slice the numbers, retail sales growth has slowed this year. Ex-gasoline, ex-autos, core, whatever, sales growth in year-over-year terms is notably weaker now than at the end of last year. It is equally, true, however, that after-tax incomes have risen at a robust pace--up 3.8% in the year to May, exactly the same pace as in the year to May 2014--so consumers in aggregate have plenty of cash to spend. So, what's holding people back at the mall? Why aren't they spending more?

15 June. 2015 Colombia's First Quarter GDP Growth Slowed By Low Oil Prices (My Publications)

Colombia is one of the fastest growing economy in LatAm but over the last few quarters the collapse in oil prices, the depreciating currency--fearing higher U.S. interest rates--and rising inflation, have depressed confidence and dragged down economic activity.

16 August. 2016 BanRep Will End its Tightening Cycle - Inflation is Set to Fall (My Publications)

The account of BanRep's July meeting revealed a significant tug-of-war between the doves and hawks. The majority argued strongly that Colombia's central bank should hike the main interest rate again, by 25bp. Others judged that the benefits of further tightening did not outweigh the costs.

23 Sept. 2015 Expansions don't die of old age - the Fed kills them, with rates (My Publications)

The theory of spontaneous combustion of the U.S. economy appears to be making something of a comeback, if our inbox and market chat is to be believed. The core idea here is that expansions die of old age, and can be helped on their way to oblivion by factors like falling corporate earnings and rising inventory. The current recovery, which began in June 2009 and is now 63 months old, already looks a bit long-in-the-tooth.

27 Mar. 2015 Banxico Still Eyeing a Rate Hike After the Fed Moves in June (My Publications)

This week's economic data for the Mexican economy have been encouraging, especially for Banxico, which left its main interest rate unchanged yesterday at 3.0%. Inflation remained on target for the second consecutive month in the first half of February, and the closely-watched IGAE economic activity index--a monthly proxy for GDP--continued to grow at a relatively solid pace, despite the big hit from lower oil prices.

22 September. 2016 December Fed Hike Still Most Likely (My Publications)

The hawks clearly tried hard to persuade their more nervous colleagues to raise rates yesterday. In the end, though, they had to make do with shifting the language of the FOMC statement, which did not read like it had come after a run of weaker data.

13 February 2017 What Would it Take to Persuade the Fed to Hike in March? (My Publications)

Our argument that rates could rise as soon as March has always been contingent on two factors, namely, robust labor market data and a degree of clarity on the extent of fiscal easing likely to emerge from Congress. On the first of these issues, the latest evidence is mixed.

14 August. 2015 Brazil's Weakness Remains - And Mexico Still Eyeing the Fed (My Publications)

The macro data reported in Brazil this week added weight to the view that the economy ended the second quarter in a severe recession. Brazil's retail sales fell 0.4% month-to-month in June, the fifth consecutive contraction. The broad retail index, which includes vehicles and construction materials, fell 0.8% month-to-month, with a sharp contraction in auto sales, down 2.8%.

19 Dec. 2014 - Fed on Course to Raise Rates in Spring, Unless the Data Intervene (My Publications)

If clarity is the first test of written English, the FOMC failed miserably yesterday. "Considerable time" is gone, but the new formulation--"the Committee judges that it can be patient in beginning to normalize the stance of monetary policy"--was not clearly defined, though the FOMC did say it is "consistent with its previous statement".

21 July 2017 What to Look for from the Fed and the Data Over the next Two Weeks (My Publications)

Chair Yellen remains as committed as ever to the idea that the tightening labor market will eventually push up inflation, but the unexpectedly weak core CPI readings for the past four months have complicated the picture in the near-term.

22 Feb. 2016 The Fed is Ahead of the Curve but Behind the Economy (My Publications)

Here's something we didn't expect to write: The CPI measure of goods prices, excluding food and energy, rose in the three months to January, compared to the previous three months. OK, the increase was marginal, a mere 0.3%, but conventional wisdom has assumed for some time that the strong dollar would push goods prices down indefinitely.

IG - US labour market driving the need for a rate rise from the Fed (News and Media)

Dr Ian Shepherdson, chief economist at Pantheon Macroeconomics, says that while US rates will rise by 0.25% on 14th December, the central bank needs to continue to move rates up or wages will spiral up out of control.

CNBC - Reluctance from the Fed (News and Media)

Ian Shepherdson, Pantheon Macroeconomics, shares his economic view of markets around the world.

8 August. 2016 Wage Gains Set to Slide in August, Delaying the Fed Until December (My Publications)

We were happy to see the 255K gain in July payrolls, but we remain nervous about the sustainability of such strong numbers. The jump in employment was very large relative to some of the key survey-based indicators of the pace of hiring, even after allowing for the 29K favorable swing in the birth/ death model, compared to a year ago, and the 27K jump in state and local government education jobs, likely due to seasonal adjustment problems

27 Feb. 2015 External Positions Highlight The Brazil-Mexico Performance Gap (My Publications)

Federal Reserve Chair Janet Yellen's testimony this week reinforced our view that the first U.S. rate hike will be in June. The transition to higher U.S. rates will require an unpleasant adjustment in asset prices in some LatAm countries.

20 September 2017 The MXN Remains Strong, but Further Upside Potential is Modest (My Publications)

Banxico's tightening cycle has totalled 400 basis points, lifting rates to 7.0%. Since late 2015, Banxico has followed the Fed closely, but other external factors also have guided many of its decisions.

25 January 2017 Will a Border Adjustment Tax Drive Up Inflation? (My Publications)

We've seen some alarming estimates of the potential impact on inflation of the House Republicans' plans for corporate tax reform, with some forecasts suggesting the CPI would be pushed up as much as 5%. We think the impact will be much smaller, more like 1-to-11⁄2% at most, and it could be much less, depending on what happens to the dollar. But the timing would be terrible, given the Fed's fears over the inflation risk posed by the tightness of the labor market.

27 August. 2015 Dudley, Channelling Yellen, Signals September is (Nearly) Out (My Publications)

It's hard to imagine that Fed Vice-Chair Dudley would choose to say yesterday that he finds the case for a September rate hike "less compelling than it was a few weeks ago" without having had a chat beforehand with Chair Yellen. Mr. Dudley pointed out that the case "could become more compelling by the time of the meeting", depending on the data and the markets, but he also argued that developments in markets and overseas economies can "impinge" on the U.S., and that there "...still appears to be excess slack in the labor market". These ideas, especially on the labor market but also on the impact of events overseas, are not shared by the hawks, but we can't imagine Mr. Dudley disagreeing in public with Dr. Yellen. We have to assume these are her views too.

15 July. 2016 Autos Will Depress Headline June Spending, Core Picture is Fine (My Publications)

When the dust settles after today's wave of data, we expect to have learned that core retail sales continued to rise in June, core inflation nudged back up to its cycle high, and manufacturing output rebounded after an auto-led drop in May. None of these reports will be enough to push the Fed into early action, but they will add to the picture of a reasonably solid domestic economy ahead of the U.K. Brexit referendum.

28 Oct. 2015 Budget Deal Means Fiscal Policy Will Ease Slightly Next Year (My Publications)

The two-year budget deal agreed between the administration and the Republican leadership in Congress will avert a federal debt default and appears to constitute a modest near-term easing of fiscal policy. The debt ceiling will not be raised, but the law imposing the limit will be suspended through March 2017, leaving the Treasury free to borrow as much as necessary to cover the deficit. As a result, the presidential election next year will not be fought against a backdrop of fiscal crisis.

3 November. 2016 Rates Will Rise in December, If Events Don't Intervene (My Publications)

The Fed left rates on hold yesterday, as expected, repeating its long-held core view that inflation will rise to 2% in the medium-term, requiring gradual increases in the fed funds rate.

30 May 2017 How Durable is the Euro's Rally Against the Dollar? (My Publications)

Fiscal stimulus, partly financed by a border adjustment tax, and Fed rate hikes, were supposed to be a powerful cocktail driving a stronger dollar in 2017. But so far only the Fed has delivered--we expect another rate hike next month--while Mr. Trump has disappointed in the White House.

3 March 2017 Yellen and Fischer Won't Push Back Against a March Rate Hike Today (My Publications)

Speeches by Chair Yellen and Vice-Chair Fischer give the two most important Fed officials the perfect platform today to signal to markets whether rates will rise this month.

29 June. 2016 Second Quarter GDP Growth Could Easily Breach 3% (My Publications)

The Atlanta Fed's GDP Now estimate for second quarter GDP growth will be revised today, in light of the data released over the past few days. We aren't expecting a big change from the June 24 estimate, 2.6%, because most of the recent data don't capture the most volatile components of growth, including inventories and government spending. The key driver of quarterly swings in the government component is state and local construction, but at this point we have data only for April; those numbers were weak.

15 May 2017 Core Inflation Surprises Again, but the Trend Likely has not Turned (My Publications)

The failure of the core CPI to mean-revert in April, after the unexpected March drop, does not mean that the Fed can relax.

19 December 2016 Yellen Backs Away from the "High- Pressure" Economy (My Publications)

Judging by conversations we have had with investors since October, the idea that the Fed will be willing to let inflation overshoot the 2% target for a time has become received wisdom in the markets.

19 Jan. 2015 Volatility Returns to the Eurozone, but Stabilisation is Likely Soon (My Publications)

Investors have been used to central bank policy as a source of low volatility in recent years, but the last six months' events have changed that. Uncertainty over the timing of Fed policy changes this year, an ECB facing political obstacles to fight deflation, and last week's dramatic decision by the SNB to scrap the euro peg have significantly contributed to rising discomfort for markets since the middle of last year.

23 May 2017 Consumers' Spending on Goods Appears to be Rebounding (My Publications)

The latest iteration of the Atlanta Fed's GDPNow model puts second quarter GDP growth at 4.1%. Assuming a modest upward revision to growth in the first quarter -- the data will be released Friday -- that would mean average growth of 2.5% in the first half, in line with our forecast for the year as a whole, and rather better than the 1.6% growth recorded in 2016.

17 March 2017 Colombia's Economy is Slowing Rapidly, BanRep to Cut Further (My Publications)

The Fed's insistence this week that U.S. rates will rise only twice more this year helped to ease pressures on LatAm markets this week, particularly FX. The way is now clear for some LatAm central banks to cut interest rates rapidly over the coming months, even before U.S. fiscal and trade policy becomes clear. We expect the next Fed rate hike to come in June, as the labor market continues to tighten. If we're right, the free-risk window for LatAm rate cuts is relatively short.

23 July. 2015 Mortgage Demand Signals Rising Third Quarter Home Sales (My Publications)

If the recovery in existing homes hadn't been interrupted by the taper tantrum, in the spring of 2013, sales by now would likely be running at an annualized rate in excess of 6M. The rising trend in sales from late 2010 through early 2013 was strong and stable, as our first chart shows, but the decline was steep after the Fed signalled it would soon slow the pace of QE, and it was made temporarily worse by the severe late fall and early winter weather.

23 August. 2016 Rental Inflation Set to Rise Further as Vacancies Hit a New Cycle Low (My Publications)

This week brings home sales data for July, which we expect will be mixed. New home sales likely rose a bit, but we are pretty confident that existing home sales will be reported down, following four straight gains. We're still expecting a clear positive contribution to GDP growth from housing construction in the third quarter, but from the Fed's perspective the more immediate threat comes from the rate of increase of housing rents, rather than the pace of home sales.

23 September. 2016 How to Read the Split FOMC's Confusing Thought Processes (My Publications)

Over the past few days we have written about the difference between the Fed's tactics--signalling rate hikes and then choosing not to act in the face of weaker data--and its strategy, which is to normalize rates in the expectation that inflation will head to 2% in the medium-term.

23 September. 2016 The MXN Will Remain a Victim of Collateral Risk This Year (My Publications)

The risk of higher US rates put LatAm currencies under pressure during the first half of the week, before the US FOMC meeting on Wednesday. But they recovered some ground yesterday, following the Fed's decision to leave rates on hold.

18 Dec. 2015 Sterling Still a Major Constraint on Growth, Despite Its Recent Decline (My Publications)

The growing perception that the U.K. MPC will lag further behind the U.S. Fed in this tightening cycle than previously has pushed sterling down to $1.49, a long way below its post-recession peak of $1.72 in mid-2014. But this has done little to enhance the overall competitiveness of U.K. exports, and net trade still looks likely to exert a major drag on real GDP growth in 2016.

19 September 2017 Four Reasons Why the MPC Likely Will Procrastinate in November (My Publications)

For the record, we think the Fed should raise rates in December, given the long lags in monetary policy and the clear strength in the economy, especially the labor market, evident in the pre-hurricane data.

21 Dec. 2015 Corporations Still Over-leveraged, but Little Near-Term Danger? (My Publications)

The markets' favorite story of the moment, aside from the Fed, seems to be the idea that overstretched corporate finances are an accident waiting to happen. When the crunch comes, the unavoidable hit to the stock market and the corporate bond market will have dire consequences, limiting the Fed's scope to raise rates, regardless of what might be happening in the labor market. We don't buy this. At least, we don't buy the second part of the narrative; we have no problem with the idea the finances of the corporate sector are shaky.

21 March 2017 LatAm's Gradual Recovery will Ease Concerns on the Fiscal Front (My Publications)

Latin American markets have been relatively resilient this year, despite Fed tightening and high global political risks. The LACI index has risen more than 5% year-to-date, and the MSCI index has been trending higher since late last year.

24 Nov. 2015 Q3 Growth Will be Revised Up, but 2015 Will Fall Short (My Publications)

An array of data today will be mostly positive, and even the most likely candidate for a downside surprise--the October advance trade numbers--is very unlikely to change anyone's mind on the Fed's December decision. On the plus side, the first revision to third quarter GDP growth should see the headline number dragged up into almost respectable territory, at 2.4%, from the deeply underwhelming 1.5% initial estimate.

*Oct. 2015 - U.S. Economic Chartbook* (My Publications)

Focussed on the Macro: The Fed will soon hike, despite soft manufacturing

*June 2017 - U.S.. Economic Chartbook* (My Publications)

The Payroll "Slowdown" Won't Last... The Fed Will Hike This Month, and Again Later This Year

*March 2017 - U.S. Economic Chartbook* (My Publications)

The Fed Is On Course For Four Hikes This Year...And Another Four In 2018

*May 2017 - U.S.. Economic Chartbook* (My Publications)

Don't be distracted by weak first quarter GDP...The Fed doesn't care (much)

*Nov. 2015 - U.S. Economic Chartbook* (My Publications)

Focussed on the Macro: The Fed will soon hike, despite soft manufacturing

*July 2017 - U.S.. Economic Chartbook* (My Publications)

The Fed plans to keep on hiking...falling unemployment is the key, not the softer CPI

*Jan. 2017 - U.S. Economic Chartbook* (My Publications)

The Fed is fretting over fiscal easing......upside risk to growth, inflation and interest rates

*April 2017 - U.S.. Economic Chartbook* (My Publications)

The Tightening Labor Market is all that Matters...Expect the Fed to Hike at Each Quarter-End

*August 2017 - U.S.. Economic Chartbook* (My Publications)

Fed tightening is deferred, not cancelled...Expected a December hike after robust fall data

*Dec. 2016 - U.S. Economic Chartbook* (My Publications)

Brace for the Fed's Pushback...But only when Fiscal Easing is in front of Congress

*Feb 2017 - U.S. Economic Chartbook* (My Publications)

How and when will the Fed respond to Fiscal Easing?

31 August. 2016 ADP Likely to Report Strong August Payrolls, But it's Unreliable (My Publications)

We are expecting a hefty increase in the August ADP employment number today--our forecast is 225K, above the 175K consensus --but we do not anticipate a similar official payroll number on Friday. Remember, the ADP number is based on a model which incorporates lagged official employment data, the Philly Fed's ADS Business Conditions Index, and data from firms which use ADP for payroll processing.

20 March 2017 If Fundamental Tax Reform Fails, What Happens to Fiscal Policy? (My Publications)

The White House Budget for fiscal 2018, released last week, has no chance of becoming law in anything like its current form, so we don't propose to spend much time dissecting it. But we do need to set out our view on what might actually happen to fiscal policy over the next few months, because it potentially could make a material difference to the pace, and ultimate extent, of Fed tightening.

12 July. 2016 Do Pricing Distortions Mean We Should Ignore Weak Help Wanted? (My Publications)

Judging from our inbox, economy bulls are pinning a great deal of hope on the idea that the collapse in the Help Wanted Online index is misleading, because the index is subject to distortions caused by shifts in pricing behavior in the online job advertising business. These distortions were analyzed in a recent Fed paper--click here to read on the Fed's website-- which makes a convincing case that at least some of the decline in the HWOL over the past half-year represents a change in recruiters' behavior rather than slowing in labor demand.

11 Jan. 2016 Brazil's Inflation Hits a 13-Year High - Copom Will Hike Again (My Publications)

Last week's events highlighted the seriously challenging global environment for LatAm equities and currencies. Trading in Chinese shares was stopped twice early last week, after falls greater than 7% of the CSI 300 index reverberated around the world. Markets were calmer on Friday but the volatility nevertheless reminded investors that LatAm's economies are floating in rough waters and their resilience will be put to the test again this year. The Fed's policy normalization, the unwinding of the leverage in EM, the continued slowdown of the Chinese economy, low commodity prices and currency depreciation are all real threats across the continent.

14 December. 2016 No Change in Median Dots, Yellen Will Stonewall on Fiscal Easing (My Publications)

The Fed will raise rates by 25bp today, but we expect no change in the median expectation-the dotplot-for two rate hikes both next year and in 2018. We fully appreciate that fiscal easing on the scale proposed by President-elect Trump, or indeed anything like it, very likely would propel inflation to a pace requiring much bigger increases in rates.

7 Dec. 2015 Will the MPC Attempt to Steer the Markets to an Earlier Hike Again? (My Publications)

December's meeting of the Monetary Policy Committee is likely to be a quiet affair in comparison to this month's pivotal ECB and Fed meetings. It's hard to see what news would have persuaded other members to join Ian McCafferty in voting to raise interest rates this month. The MPC might comment in the minutes to try to reverse the further fall in market interest rate expectations since its previous meeting, when it already thought they were too low. But the potency of any moderately hawkish guidance may be diluted by further strident comments from the Committee's doves.

4 May. 2016 The Recent Recovery of LatAm's Currencies Poses No Threat, Yet (My Publications)

The recovery of some key commodity prices, policy action in China, and stronger expectations that the U.S. Fed will start hiking rates later during the year, have helped reduce volatility in LatAm financial markets. Oil prices have rise by around 20% year-to-date, iron ore prices are up about 60% and copper has risen by 7%.

*Sept. 2015 - U.S. Economic Chartbook* (My Publications)

Fed interrupted? But not for long

11 Feb. 2015 Soaring Job Openings Suggest Super-Easy Money is Now Risky (My Publications)

Back in April 2012, Janet Yellen--then Fed Vice-Chair--spoke in detail about the labor market and monetary policy. The key point of her labor market analysis was that it was impossible to know for sure how much of the increase in unemployment--at the time, the headline rate was 8.2%--was structural, and how much was cyclical.

*September 2017 - U.S.. Economic Chartbook* (My Publications)

Harvey and Irma will shred late q3/q4 data... ...if the fed doesn't hike in December, they will in march

10 July. 2015 Last Chance for Common Sense to Prevail in Greece and the EU (My Publications)

Another weekend, another summit, but the sense of urgency is acute this time. Greece, and the rest of the world, will likely have to prepare for Grexit if Mr. Tsipras' final proposal is rebuffed by the EU. We expect a deal, with Greece to remain in the Eurozone, but visibility is limited and uncertainty is high.

10 Dec. 2015 Does the Case for Permanently Much Lower Real Rates Stand Up? (My Publications)

Larry Summers stirred the pot yet again with an article in the FT at the weekend, arguing that because the Fed typically eases by more than 300bp to pull the economy out of recession, "the chances are very high that recession will come before there is room to cut rates enough to offset it". This follows from his view that the neutral level of real short rates has fallen so far that "the odds are the Fed will not be able to raise rates 100 basis points a year without threatening to undermine recovery".

10 July. 2015 June's Inflation Data Underlines Divergent Monetary Paths Ahead (My Publications)

Brazil's central bank has ignored, so far, the severe economic downturn and has continued its aggressive monetary tightening in order to regain credibility and curb stubbornly high inflation. In contrast, Mexico's central bank is in an enviable position, with inflation below target and under control. Its monetary policy is mainly dependent on the Fed's rate normalization.

BLOOMBERG - Pantheon's Shepherdson Says Inflation Killed Sep. Hike (News and Media)

Ian Shepherdson, chief economist at Pantheon Macroeconomics, and Krishna Memani, chief investment officer at OppenheimerFunds, discuss the impact of low inflation on the Federal Reserve's rate path.

BLOOMBERG - Don't Need Any More Stimulus: Ian Shepherdson (News and Media)

Pantheon Macroeconomics Founder Ian Shepherdson discusses Fed policy. He speaks on "Bloomberg Surveillance."

BLOOMBERG - Markets are telling Yellen it's time to move (News and Media)

Ian Shepherdson, founder at Pantheon Macroeconomics, and Jeff Saut, chief investment strategist at Raymond James, look forward to a potential Federal Reserve rate hike on December 16 and how markets and the U.S. economy may react in the year ahead.

Ian Shepherdson

Ian Shepherdson's mission is to present complex economic ideas in a clear, understandable and actionable manner to financial market professionals. He has worked in and around financial markets for more than 20 years, developing a strong sense for what is important to investors, traders, salespeople and risk managers.

About Us

Pantheon Macroeconomics' Chief Economist Dr. Ian Shepherdson provides unbiased, independent economic intelligence to financial market professionals.

MARKET WATCH - Yellen's message this week? Rate hikes are coming (News and Media)

Chief US economist Ian Shepherdson on the latest Jobs report

NEW YORK TIMES - U.S. Economy Added 271,000 Jobs in October - Unemployment Rate at 5% (News and Media)

Chief U.S. Economist Ian Shepherdson on today's Payroll report

WALL STREET JOURNAL - Economists react to the May jobs report: "Unambiguously Positive" (News and Media)

Chief US economist Ian Shepherdson on the latest Jobs report

WALL STREET JOURNAL - Economists react to the May jobs report: "Unambiguously Positive" (News and Media)

Chief US economist Ian Shepherdson on the latest Jobs report

WALL STREET JOURNAL - Economists react to the May jobs report: "Unambiguously Positive" (News and Media)

Chief US economist Ian Shepherdson on the latest Jobs report

WALL STREET JOURNAL - U.K. Pay Growth Flattens Off (News and Media)

Chief U.K. Economist Samuel Tombs on Pay Growth and Unemployment

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