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US Watch - Rapidly declining participation is a warning sign
- Macro economy
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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.
US - Hawk at the summit, Dove on the horizon
- Macro economy
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Inflation has increased on the back of the energy shock, but is expected to decrease from here. Labour market strength is overstated due to frontloaded hiring in services, causing a drag on Q3 hiring.
Global Monthly - Teflon economy shaking off another shock
- Macro economy
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The global economy remains resilient in the face of persistent shocks. The AI boom, defence spending and the energy transition ‘capex troika’ are likely to continue supporting growth going forward. Still, AI bubble risk, and sovereign debt dynamics remain a worry.
FOMC Watch – Half the board sees rate hikes, Warsh gives no guidance
- Macro economy
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In a unanimous decision, the Fed held the benchmark rate in the 3.5-3.75% range. As expected, the statement removed the reference to additional rate adjustments, paving the road for unanimity. In a first change to communication, it actually removed over half the content. Still, there were some important takeaways. Taking away any fear of shrinking the balance sheet, it added ‘the committee reaffirmed its policy of maintaining ample reserves in the banking system,’ although an implementation note on SOMA holdings casts some doubt about the pace over the coming months. The tone on recent data is slightly more dovish. It added that productivity and capital investment are strong, and it changed the wording of job gains from low to ‘kept pace with the workforce,’ which still implies low. It ends with a short and strong hawkish statement balancing out the overall narrative: ‘The Committee will deliver price stability.’ That’s clearly only half the mandate.
Top of Mind - A new chapter for the Fed
- Macro economy
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Kevin Warsh is about to chair his first FOMC meeting, after being confirmed against a political background. Warsh inherits a difficult policy environment where the US is hit by three concurrent shocks: tariffs, the energy supply shock and the AI investment boom. These shocks put pressure on his ability to pursue his goals. In this webinar, Rogier Quaedvlieg, Larissa de Barros Fritz and Georgette Boele will walk you through their assessment of the Warsh’s likely policy aims, as well as their feasibility given current economic constraints. They will also discuss the potential implications for rates and the dollar.
US - Supply chain pressures are mounting
- Macro economy
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The labour market remains stable, but the unemployment rate is flattered by a decline in participation. Producer prices show initial signs of the energy shock cascading through the economy.
Global Monthly - The Hormuz clock is ticking
- Macro economy
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The US and Iran seem close to a deal to reopen the Strait of Hormuz. But even with a full reopening, energy prices are likely to stay well above pre-war levels over the coming quarters. In the absence of a deal, the continued rundown of oil inventories poses the risk of nonlinear price spikes. Still, we expect the growth impact to stay contained thanks to the underlying resilience and flexibility of the global economy.
Warsh inherits Powell’s unfinished legacy
- Macro economy
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Tomorrow, Kevin Warsh will be sworn in as the new Chairman of the Federal Reserve. This is the first time in 40 years that the ceremony will be held at the White House. The last chairmen were all sworn in at the Fed, without the attendance of the President. Even if this is not the first time in history, the inauguration at the White House does send a signal, at a delicate moment. Insisting on normal procedure was a chance for Warsh to more cleanly distance himself from the White House, in a time where pressure on the Fed’s independence remains. Indeed, it is for that very reason that the former Chairman, Jerome Powell, decided to keep his position on the Federal Reserve Board until legal attacks on his position are resolved.
FOMC Watch - The dots move up, and Powell will be one of them
- Macro economy
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The Fed left rates unchanged as expected. The major headline was that four FOMC members dissented, a number not seen since the early 1990s. This made the final Powell FOMC meeting his most divided, and gives an interesting starting point for his successor, who was already expected to have some trouble building consensus behind him.
US - Two supply shocks, one inflation problem
- Macro economy
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Demand remains solid in the aggregate, and the labour market stays in its odd equilibrium. All eyes are on the inflation impact of the energy shock, but disinflation prospects were already limited.
