Short Session
April 7, 2023
–From Bullard presentation yesterday: “Continued appropriate macroprudential policy can contain financial stress, while appropriate monetary policy can continue to put downward pressure on inflation.”
–I would dispute the premise. Monetary policy does put downward pressure on inflation, but also puts upward pressure on financial stress, which regulations can’t control. The presentation is worth reviewing, linked below. A lot of charts showing that financial stress is already receding and that the labor market remains robust. He cites the 1994 experience with the tequila crisis, Orange County blow-up and later, LTCB, noting that they were not ultimately harbingers of poor economic performance. (1994 was another period of rapid rate increases). Of course, debt levels were much lower as macro percentages at that time.
–In any case, the SOFR curve reacted with further inversion; near term easing projections were pared back. SFRZ3 fell 11.5 to 9590.5 (which is still 100 bps below the Fed’s 2023 dot of 5.1%). SFRZ4 fell 5 to 9720.5. SFRZ5 was actually up 1 on the day to 9731.5. Two year treasury curve was +6 bps to 3.82%, rest of the curve nearly unchanged.
–NFP today expected 230k. YOY Average Hourly Earnings 4.3 from 4.6% last. Shortened session with close at 10:15 Chicago time. Settles are at 10:00 a.m. Not sure how much longer it will be appropriate to cite Chicago times, as it becomes more probable that the CME (and other businesses) move headquarters out of the city as the new mayor vows heavy new taxes to pay for social services.
