Our research

Spotlight - US Midterms – Trump can veto, Democrats cannot

The upcoming mid-terms are of little importance for the direction of policy, merely the potential speed. Our base case is a divided congress, which implies that Trump will continue to rule by Executive order.

US - A race against the clock

Warsh’s Jackson Hole speech increased the perceived odds of a September hike. The broader FOMC still seems divided. The speed of progress on the disinflation process is key. The labour market muddles along, with weak hiring and employment caught by dwindling supply.

Global Monthly - Deal or no deal: Does it still matter?

The energy shock is back, but its impact more idiosyncratic than before. A lot of energy is getting through Hormuz ‘dark’, and this lowers the importance of a deal to re-open the Strait. Less important ≠ not important, and a deal would still help restore LNG flows, lower inflation and reduce European energy supply risks. Resurgent energy prices and stubborn inflation are keeping central banks on edge. Markets have probably gone too far pricing hikes…but the risk of more tightening than we currently expect has risen.

FOMC Watch – Warsh doubles down, risks crying wolf

Kevin Warsh just held a critically important speech at Jackson Hole. Warsh was under pressure, predominantly because of his failure to communicate clearly in the latest FOMC press conference, where he failed to explain why the FOMC held rates steady, despite three dissents, and where he failed to give a clear inflation target. Markets were looking for a clear inflation target, and a framework for understanding his reaction function. He delivered only partially.

FOMC Watch – Warsh’s Jackson Hole Debut

Kevin Warsh will give his first Jackson Hole speech on Friday. First speeches are typically used by new Fed Chairs to outline, or at least hint at, their doctrine. Warsh could use that reset. Jackson Hole occurs at a pivotal moment with the Fed and Treasury seemingly pushing in opposite directions, with heightened term premia as a result.

Transaction Trends - When temperatures spike, consumption seeks cooling

Extreme heat not only affects health and quality of life, but also leads to noticeable shifts in household spending behavior. The recent heatwave was accompanied by a temporary decline in Dutch household consumption. Online spending and cash withdrawals declined during the heatwave, while card spending initially increased and only fell during the most extreme heat conditions. Card spending held up relatively better in highly urbanised areas than in less urbanised regions. In particular, spending at restaurants and cafés increased in these areas, while fuel expenditures declined sharply elsewhere.

FOMC Watch - FOMC leaves door for September hike wide open

The Fed decided to leave its target for the federal funds rate unchanged at 3.5-3.75%. This was in line with our own expectations and those of the vast majority of economists. However, few would have seen the hold as a done deal. Indeed, financial markets had priced in around a 30% chance of a 25bp hike in the run-up to the decision. In addition, three (Logan, Hammack and Kashkari) of the twelve voting FOMC members dissented, preferring instead to raise interest rates. We had expected to see some votes for hikes, though there was one more dissent than we thought there would be.

FOMC Watch - July on hold, September on the table

We expect the FOMC to leave rates unchanged next Wednesday. June CPI surprised significantly to the downside and, even if June core PCE comes in somewhat firmer (indeed, we expect 0.2% m/m), the recent inflation data should provide policymakers with sufficient confidence to wait for additional evidence on both inflation and labour-market trends before the September meeting.

US Watch – Hawks under pressure

US Watch - Rapidly declining participation is a warning sign

Payrolls slowed sharply in June, confirming our earlier warning that frontloaded hiring would likely be followed by payback. The unemployment rate remains deceptively low because participation has fallen rapidly. Only a small portion of the decline is explained by demographics. Lower participation in older age groups is likely permanent, while younger age groups’ re-entrance could lead to rapidly rising unemployment.