We like rates structurally, both on adequate valuations (breakeven levels: 5y, 3.55% (2.98%); and 10y, 3.36% (3.09%)) and as a hedge for risk assets, taking the under on the (largely) priced base case of a smooth 3 year (2018-2020) rate hiking cycle. Based on our macro risk-neutral model and pure expectations, we see 1.80-2.50% and 2.10-2.30% on the UST 5 and 10. Our view is to stay long on the UST 5-10y, prefer 7y; tactical view suggests range trading, 10T around 2.80-3.20%, into 1H19 (Fed hikes by 75bps to 2.75-3.00% by 1H19; anchor extent of rates rally; near term upside risks of a Republican sweep of the mid-terms, providing the President and the Republican Party with another opportunity to pursue even looser (pro-wealth) fiscal policy.
Fed must relent. Our expectations now is for a state dependent (global financial conditions to stabilise, cushion rising debt repayment burden and allowing domestic leverage to level off, coupled with still moderate economic growth/inflation, policy options to widen positively globally, especially in China) Fed relent with scope for a final 25-50bps, if any (pause otherwise), in late 2019/2020, should the cycle extents, with the FFR hitting cycle terminal at 2.75-3.00%.
Lower for longer; constructive ambiguity. Chair Powell took pains to paint an image of constructive ambiguity, repeatedly highlighting that the Committee is focused on pursuing policy that is “appropriate” in achieving its dual mandate. The current policy stance is deemed appropriate with current projections achievable via modest policy adjustments (likely -75bps of cuts). Nonetheless, if the economy turns down, “a more extensive sequence of rate cuts is appropriate”. As we argued prior, “it is better to guide for looser policy in an open-ended manner (flattening backwardation of rate cut expectations) rather than encourage front-loading of rate cut expectations”. We think that the Chair has achieved such an outcome, together with “guidance” for an extended pause at a minimum; the best mix of policy, considering circumstances.
201906 FOMC - An ounce of prevention is worth a pound of cure, unless when th...QuanJianChingCFACAIA
Key drivers will revolve around, i) global trade negotiations/future framework and its implications; ii) contagion from global growth slowdown and weakness in the industrial sector (disruptions to semi-cons, autos, energy sectors; Boeing); and iii) changes, if any, to the Fed’s reaction function. We do not see sufficient evidence of a steep slowdown into an outright recession (though recognize the uncertainties) which markets have broadly priced. The scale of policy guidance and aggressively priced rates markets, we believe, will turn out to be an error. Global financial conditions are rapidly easing, pushing up asset valuations on highly uncertain fundamentals with aggressively dovish pricing limiting future policy room to support markets. Instead of seeking to dampen volatility, it would have been better to realign markets to the Fed’s (strategic) reaction function and allow global markets to find its own levels (via two way volatility).
Tactically, we think that duration is rich and see US5T and US10T closer to 2.30-2.60% into 1H20 (+10-15bps in breakevens; +30-40bps in TP), expecting a bear steepening; preferring rolling the 3 month. Duration-adjusted, prefer front/backend to 2-7 years.
With a backdrop of accommodative policy and our view of generally anchored inflation and resilient growth over coming quarters, we believe that risk/carry will remain supported into 2H19, within the current context (using more binary rather than probabilistic analytical lenses; prolonged clarity over the opportunity cost of risk-free asset amid broadly stable growth/inflation).
Inflation targeting in Emerging Market Economies Sarthak Luthra
The presentation represents inflation targeting in EMEs, with a focus on various exchange rate regimes in Asian countries and their susceptibility to financial crisis.
Adopting Inflation Targeting for Monetary Policy: Practical Issues for Nigeriaiosrjce
IOSR Journal of Humanities and Social Science is a double blind peer reviewed International Journal edited by International Organization of Scientific Research (IOSR).The Journal provides a common forum where all aspects of humanities and social sciences are presented. IOSR-JHSS publishes original papers, review papers, conceptual framework, analytical and simulation models, case studies, empirical research, technical notes etc.
Fed must relent. Our expectations now is for a state dependent (global financial conditions to stabilise, cushion rising debt repayment burden and allowing domestic leverage to level off, coupled with still moderate economic growth/inflation, policy options to widen positively globally, especially in China) Fed relent with scope for a final 25-50bps, if any (pause otherwise), in late 2019/2020, should the cycle extents, with the FFR hitting cycle terminal at 2.75-3.00%.
Lower for longer; constructive ambiguity. Chair Powell took pains to paint an image of constructive ambiguity, repeatedly highlighting that the Committee is focused on pursuing policy that is “appropriate” in achieving its dual mandate. The current policy stance is deemed appropriate with current projections achievable via modest policy adjustments (likely -75bps of cuts). Nonetheless, if the economy turns down, “a more extensive sequence of rate cuts is appropriate”. As we argued prior, “it is better to guide for looser policy in an open-ended manner (flattening backwardation of rate cut expectations) rather than encourage front-loading of rate cut expectations”. We think that the Chair has achieved such an outcome, together with “guidance” for an extended pause at a minimum; the best mix of policy, considering circumstances.
201906 FOMC - An ounce of prevention is worth a pound of cure, unless when th...QuanJianChingCFACAIA
Key drivers will revolve around, i) global trade negotiations/future framework and its implications; ii) contagion from global growth slowdown and weakness in the industrial sector (disruptions to semi-cons, autos, energy sectors; Boeing); and iii) changes, if any, to the Fed’s reaction function. We do not see sufficient evidence of a steep slowdown into an outright recession (though recognize the uncertainties) which markets have broadly priced. The scale of policy guidance and aggressively priced rates markets, we believe, will turn out to be an error. Global financial conditions are rapidly easing, pushing up asset valuations on highly uncertain fundamentals with aggressively dovish pricing limiting future policy room to support markets. Instead of seeking to dampen volatility, it would have been better to realign markets to the Fed’s (strategic) reaction function and allow global markets to find its own levels (via two way volatility).
Tactically, we think that duration is rich and see US5T and US10T closer to 2.30-2.60% into 1H20 (+10-15bps in breakevens; +30-40bps in TP), expecting a bear steepening; preferring rolling the 3 month. Duration-adjusted, prefer front/backend to 2-7 years.
With a backdrop of accommodative policy and our view of generally anchored inflation and resilient growth over coming quarters, we believe that risk/carry will remain supported into 2H19, within the current context (using more binary rather than probabilistic analytical lenses; prolonged clarity over the opportunity cost of risk-free asset amid broadly stable growth/inflation).
Inflation targeting in Emerging Market Economies Sarthak Luthra
The presentation represents inflation targeting in EMEs, with a focus on various exchange rate regimes in Asian countries and their susceptibility to financial crisis.
Adopting Inflation Targeting for Monetary Policy: Practical Issues for Nigeriaiosrjce
IOSR Journal of Humanities and Social Science is a double blind peer reviewed International Journal edited by International Organization of Scientific Research (IOSR).The Journal provides a common forum where all aspects of humanities and social sciences are presented. IOSR-JHSS publishes original papers, review papers, conceptual framework, analytical and simulation models, case studies, empirical research, technical notes etc.
The Impact of Monetary Policy on Economic Growth and Price Stability in Kenya...iosrjce
The government of Kenya’s economic blueprint dubbed ‘Kenya Vision 2030’ acknowledges the
importance of maintaining a stable macro-economic environment. Despite Kenya implementing monetary
policy aimed at achieving stable prices and fostering economic growth, the economy has been reporting low
economic growth and high rates of inflation. These implies there is still a point of disconnect between what
Central bank of Kenya Pursues and the outcome of the objectives. In this study, structural vector autoregresion
(SVAR) model is estimatedto trace the effects of monetary policy shocks on economic growth and prices in
Kenya. Three alternative monetary policy instruments were put into use i.e. broad money supply (M3), interbank
lending rate (ILR) and the real effective exchange rate (REER). The study found evidence that monetary policy
innovations carried out on the quantity-based nominal anchor (M3) has modest effects on economic growth and
prices with a very fast speed of adjustment. Innovations on the price-based nominal anchors (ILR and REER)
have relative and fleeting effects on real GDP. The study recommended that Central Bank of Kenya should
place more emphasis on the use of the quantity-based nominal anchor rather than the price-based nominal
anchor
this presentation is currently have this upload set to Public. This means that it will be indexed by search engines and view able by anyone on the web.
SandPointe
Investment Perspective
-----------------------------------------------------------------
Roger E. Brinner, PhD
Chief Market Strategist and Co-founding Partner
September 2014
Monetary Policy: Basic Overview of the 'Weapons of Monetary Policy' Use the specific power points and activities on Exchange Rates and Interest Rates to support your knowledge
Both domestic consumption (higher debt service and cost of living, slower pace of asset price appreciation, low real income gains) and capital expenditure (higher debt service, elevated current spending vis-à-vis GDP, weakening domestic demand, external uncertainties) is expected to ease off, with the fiscal impulse peaking, financial conditions tightening, and negative impact of prior dollar strength. This should taper labour market gains and keep inflation pressures benign. The extent of slowdown will be dependent upon the resiliency of private sector balance sheet and the subsequent impact on demand. It is imperative that the Fed stays ahead in managing overall debt servicing costs (short-run implications on demand; longer-run may short-circuit the feedback from demand to capital spending and future productivity), and limit the negative impact of policy on overall growth.
We like rates structurally, both on adequate valuations and as a hedge for risk assets, taking the under on the (largely) priced base case of a smooth 3 year (2018-2020) rate hiking cycle.
The Impact of Monetary Policy on Economic Growth and Price Stability in Kenya...iosrjce
The government of Kenya’s economic blueprint dubbed ‘Kenya Vision 2030’ acknowledges the
importance of maintaining a stable macro-economic environment. Despite Kenya implementing monetary
policy aimed at achieving stable prices and fostering economic growth, the economy has been reporting low
economic growth and high rates of inflation. These implies there is still a point of disconnect between what
Central bank of Kenya Pursues and the outcome of the objectives. In this study, structural vector autoregresion
(SVAR) model is estimatedto trace the effects of monetary policy shocks on economic growth and prices in
Kenya. Three alternative monetary policy instruments were put into use i.e. broad money supply (M3), interbank
lending rate (ILR) and the real effective exchange rate (REER). The study found evidence that monetary policy
innovations carried out on the quantity-based nominal anchor (M3) has modest effects on economic growth and
prices with a very fast speed of adjustment. Innovations on the price-based nominal anchors (ILR and REER)
have relative and fleeting effects on real GDP. The study recommended that Central Bank of Kenya should
place more emphasis on the use of the quantity-based nominal anchor rather than the price-based nominal
anchor
this presentation is currently have this upload set to Public. This means that it will be indexed by search engines and view able by anyone on the web.
SandPointe
Investment Perspective
-----------------------------------------------------------------
Roger E. Brinner, PhD
Chief Market Strategist and Co-founding Partner
September 2014
Monetary Policy: Basic Overview of the 'Weapons of Monetary Policy' Use the specific power points and activities on Exchange Rates and Interest Rates to support your knowledge
Both domestic consumption (higher debt service and cost of living, slower pace of asset price appreciation, low real income gains) and capital expenditure (higher debt service, elevated current spending vis-à-vis GDP, weakening domestic demand, external uncertainties) is expected to ease off, with the fiscal impulse peaking, financial conditions tightening, and negative impact of prior dollar strength. This should taper labour market gains and keep inflation pressures benign. The extent of slowdown will be dependent upon the resiliency of private sector balance sheet and the subsequent impact on demand. It is imperative that the Fed stays ahead in managing overall debt servicing costs (short-run implications on demand; longer-run may short-circuit the feedback from demand to capital spending and future productivity), and limit the negative impact of policy on overall growth.
We like rates structurally, both on adequate valuations and as a hedge for risk assets, taking the under on the (largely) priced base case of a smooth 3 year (2018-2020) rate hiking cycle.
In CBO’s projections, economic output is expected to grow by 2.3 percent in 2019, supporting strong labor market conditions that feature low unemployment and rising wages. After 2019, economic growth averages 1.8 percent per year, which is less than the historical average.
CBO estimates that the federal budget deficit for 2019 will be $960 billion. Under current law, budget deficits are projected to average $1.2 trillion a year between 2020 and 2029, boosting debt held by the public to 95 percent of GDP in that year—its highest level since just after World War II.
Monetary policy is the policy adopted by the authority of a nation to control either the interest rate payable for very short term borrowings or the money supply, often as an attempt to reduce inflation or the interest rate, to ensure price stability and general trust of the value and stability of the nation's currency for every financial year based on the quarter, the new policy is made and executed for the growth of the economy. The RBI carries out the monetary policy through open market tasks, bank rate strategy, reserve system, credit control strategy, moral influence and through numerous different instruments.
Since the previous meeting of the Monetary Policy Committee (MPC), several risks to the inflation outlook have begun to materialise. While headline inflation is comfortably within the inflation target band, indications are that we have passed the low point of the current cycle. Developments in the international environment have placed upward pressure on the inflation trajectory, while the domestic growth outlook remains challenging.
This is a study attempting to statistically measure the impact of Government policies on the economy and the stock market. The “causal” Government policies considered will include:
Fiscal Policy, entailing Budget Deficit spending;
Monetary Policy with the Federal Reserve managing the Federal Funds rate; and
Monetary Policy with the Federal Reserve conducting large purchases of securities (Treasuries, MBS);
The dependent or impacted macroeconomic variables affected by the above Government policies will include:
The overall economy (RGDP);
Inflation (CPI);
Unemployment Rate; and
Stock market.
Global Economic Update & Strategic Investment Outlook Q2 2014Cohen and Company
An informative overview of the current state of the global economy and the many factors that impact investment strategies, and a look at domestic economic indicators that may impact them.
MACROECONOMIC FOCUS AND INDUSTRY ANALYSIS .docxsmile790243
MACROECONOMIC FOCUS AND INDUSTRY ANALYSIS 1
MACROECONOMIC FOCUS AND INDUSTRY ANALYSIS 2
Milestone Two
Macroeconomic Focus and Industry Analysis
NOTE: highlighted any change you made. Know which one is revised. Thanks.
Note: See all highlighted on yellow comments and revised it.THANKS.
Macroeconomic Focus and Industry Analysis
Macroeconomic forecast of the monetary school of thought.
From a monetarist perspective, regulation of the flow and circulation of money is important in determining and influencing preferred economic conditions in the United States. Reducing the circulation of money in the economy has many effects on the macroeconomic environment and determines the activities of other stakeholders in the financial market. From a monetarist school of thought, the government has sole responsibility to both country and citizens in ensuring favorable monetary policies are implemented that are akin to the prevailing economic conditions through the control of inflation and prevention of deflation in the country (Fair, 2011).
Reducing the supply of money in the economy has effects on the macro-economic Cory Kanth:
This point is not clear. It needs clarification in terms of better explanation.
environment as earlier mentioned. Reducing money circulation has both short run and a long run effect that shift practices in the economic environment. For instance, consumer spending is affected by the implementation of monetary policies. When the government implements monetary policies that do not favor money circulation, consumer spending capabilities are significantly reduced (Fair, 2011). The reduction in the spending is due to the reduced flow of money in the financial market which limits the funds accessible to consumers in the market. This policy is usually exercised in a bid to control inflation in the market where prices go up due to increased demand catalyzed by the availability of money in the hands of the spenders.
Reducing the growth of money circulation from a monetary perspective is empirical in determining the cost of labor. When there is a circulation of money in the market, individuals can opt for willing unemployment due to the availability of funds through other sources other than the low paying jobs (Gnimassoun & Mignon, 2015). Further analysis on the effect of reducing money circulation is the government stabilizes the prices of labor meaning little choice is left for personnel who may discriminate employment due to reduced wages or low salaries.
Investment spending is a factor directly affected by the increase in interest rates. This is because investors avoid high lending rates due to high interests that are amassed over operational periods. Moreover, increased lending rates affect investment spending since capital and ...
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
Poonawalla Fincorp and IndusInd Bank Introduce New Co-Branded Credit Cardnickysharmasucks
The unveiling of the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card marks a notable milestone in the Indian financial landscape, showcasing a successful partnership between two leading institutions, Poonawalla Fincorp and IndusInd Bank. This co-branded credit card not only offers users a plethora of benefits but also reflects a commitment to innovation and adaptation. With a focus on providing value-driven and customer-centric solutions, this launch represents more than just a new product—it signifies a step towards redefining the banking experience for millions. Promising convenience, rewards, and a touch of luxury in everyday financial transactions, this collaboration aims to cater to the evolving needs of customers and set new standards in the industry.
how to sell pi coins at high rate quickly.DOT TECH
Where can I sell my pi coins at a high rate.
Pi is not launched yet on any exchange. But one can easily sell his or her pi coins to investors who want to hold pi till mainnet launch.
This means crypto whales want to hold pi. And you can get a good rate for selling pi to them. I will leave the telegram contact of my personal pi vendor below.
A vendor is someone who buys from a miner and resell it to a holder or crypto whale.
Here is the telegram contact of my vendor:
@Pi_vendor_247
when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
However, the developers are working hard to get them released as soon as possible.
Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the telegram contact of my personal pi vendor
@Pi_vendor_247
BYD SWOT Analysis and In-Depth Insights 2024.pptxmikemetalprod
Indepth analysis of the BYD 2024
BYD (Build Your Dreams) is a Chinese automaker and battery manufacturer that has snowballed over the past two decades to become a significant player in electric vehicles and global clean energy technology.
This SWOT analysis examines BYD's strengths, weaknesses, opportunities, and threats as it competes in the fast-changing automotive and energy storage industries.
Founded in 1995 and headquartered in Shenzhen, BYD started as a battery company before expanding into automobiles in the early 2000s.
Initially manufacturing gasoline-powered vehicles, BYD focused on plug-in hybrid and fully electric vehicles, leveraging its expertise in battery technology.
Today, BYD is the world’s largest electric vehicle manufacturer, delivering over 1.2 million electric cars globally. The company also produces electric buses, trucks, forklifts, and rail transit.
On the energy side, BYD is a major supplier of rechargeable batteries for cell phones, laptops, electric vehicles, and energy storage systems.
Turin Startup Ecosystem 2024 - Ricerca sulle Startup e il Sistema dell'Innov...Quotidiano Piemontese
Turin Startup Ecosystem 2024
Una ricerca de il Club degli Investitori, in collaborazione con ToTeM Torino Tech Map e con il supporto della ESCP Business School e di Growth Capital
where can I find a legit pi merchant onlineDOT TECH
Yes. This is very easy what you need is a recommendation from someone who has successfully traded pi coins before with a merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi network coins and resell them to Investors looking forward to hold thousands of pi coins before the open mainnet.
I will leave the telegram contact of my personal pi merchant to trade with
@Pi_vendor_247
USDA Loans in California: A Comprehensive Overview.pptxmarketing367770
USDA Loans in California: A Comprehensive Overview
If you're dreaming of owning a home in California's rural or suburban areas, a USDA loan might be the perfect solution. The U.S. Department of Agriculture (USDA) offers these loans to help low-to-moderate-income individuals and families achieve homeownership.
Key Features of USDA Loans:
Zero Down Payment: USDA loans require no down payment, making homeownership more accessible.
Competitive Interest Rates: These loans often come with lower interest rates compared to conventional loans.
Flexible Credit Requirements: USDA loans have more lenient credit score requirements, helping those with less-than-perfect credit.
Guaranteed Loan Program: The USDA guarantees a portion of the loan, reducing risk for lenders and expanding borrowing options.
Eligibility Criteria:
Location: The property must be located in a USDA-designated rural or suburban area. Many areas in California qualify.
Income Limits: Applicants must meet income guidelines, which vary by region and household size.
Primary Residence: The home must be used as the borrower's primary residence.
Application Process:
Find a USDA-Approved Lender: Not all lenders offer USDA loans, so it's essential to choose one approved by the USDA.
Pre-Qualification: Determine your eligibility and the amount you can borrow.
Property Search: Look for properties in eligible rural or suburban areas.
Loan Application: Submit your application, including financial and personal information.
Processing and Approval: The lender and USDA will review your application. If approved, you can proceed to closing.
USDA loans are an excellent option for those looking to buy a home in California's rural and suburban areas. With no down payment and flexible requirements, these loans make homeownership more attainable for many families. Explore your eligibility today and take the first step toward owning your dream home.
Exploring Abhay Bhutada’s Views After Poonawalla Fincorp’s Collaboration With...beulahfernandes8
The financial landscape in India has witnessed a significant development with the recent collaboration between Poonawalla Fincorp and IndusInd Bank.
The launch of the co-branded credit card, the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card, marks a major milestone for both entities.
This strategic move aims to redefine and elevate the banking experience for customers.
Exploring Abhay Bhutada’s Views After Poonawalla Fincorp’s Collaboration With...
201809 FOMC
1. FOMC Sep 2018 statement. Highlights (1)
• Unchanged characterisation of economic activities. Economic activity is seen to be rising at a strong rate, both household spending and
business fixed investment have grown strongly. The labour market has continued to strengthen; job gains have been strong, on average, and the
unemployment rate has stayed low. Job gains averaged “well above the pace” required in the long run to absorb new entrants.
• Risks to the economic outlook remains roughly balanced.
• Impact of trade protectionism, on aggregate, is seen as relatively small. The Chair is taking a wait-and-see approach, with limited
negative impact seen thus far; uncertainties remain over whether negative impact will be realised and if they did, whether to see them as permanent
or one-off adjustments and thus more transitory in nature.
• Inflation mandate fulfilled. Both headline and core prices remain near 2%. Indicators of longer-term inflation expectations are little changed, on
balance.
• Monetary policy conducted with the objective of sustaining the current cycle (via further tightening). The Committee expects that
further gradual increases in the FFR will be consistent with sustained expansion of economic activity, strong labour market conditions and inflation
near the symmetric 2% objective over the medium term. Realized and expected economic conditions will be assessed relative to the i) maximum
employment objective and ii) symmetric 2% inflation target. In determining the timing and size of adjustments to the FFR, the Committee will take
into account a wide range of information including labour market conditions, inflation pressures and expectations, and readings on financial and
international developments.
• The sentence “the stance of policy remains accommodative, thereby supporting strong labour conditions and a sustained return to 2% inflation” was
removed, as widely expected, reflecting rate hikes to date. The Chair highlighted that the change does not imply any change in the policy rate path and
that policy is proceeding in line with expectations. Policy is likely still “accommodative” considering spot to neutral (2.00-2.25% to 3.00%).
• Sound financial system and moderate financial stability risks. Banks are now held to much higher standards with regards to regulations,
capital and liquidity, and in the ways risks are assessed and managed. The Chair deems the financial system as stronger and well-positioned to
support the economy. The Chair too implied that, as of now, he sees no need for a rise in SIFIs’ CCyB. Financial stability risks are, on the whole,
deemed moderate.
2. FOMC Sep 2018 statement. Highlights (2)
• Pragmatism over forward guidance. Chair implicitly downplays the importance of forward guidance on more than one occasion, highlighting
that forecasts (on the economy and policy) one or two years out are highly uncertain. Many key variables are uncertain and have no precise point
estimates (NAIRU, LFPR, r*, concept of policy “accommodation”). The SEP and FFR dot-plot are individual forecasts based on a range of
expectations which are fairly uncertain and subject to changes on evolving circumstances. The most important consideration, above all, is whether the
current policy stance is appropriate in achieving the statutory goals of the Fed and such decision is taken on a meeting by meeting basis, based on
realised data and expectations on the economy and markets. The gradual approach to policy will help mitigate the long and variable lag nature of
monetary policy adjustments by providing scope for the Committee to make adjustments to policy from the subsequent response of the economy to
prior policy adjustments (data dependency). Such an approach is undertaken as an intermediate path that balances the risks of overheating and
unnecessary tightening that inadvertently cuts short the expansion cycle (which may proof to be sustainable).
• Marking-to-realised for 2018; broadly unchanged thereafter. Median growth rates were upgraded for 2018 and 2019 by 30bps and 10bps to
3.1% (cumulatively +100bps since Dec 17) and 2.5% respectively. 2020, 2021 (new projection) and longer run growth estimates were left at 2.0%,
1.8% and 1.8% respectively. This suggests that most of the impact from fiscal spending were deemed by the Fed to be cyclical rather than structural
(Chair highlighted that supply-side impact are very uncertain and may take some time, if any, to emerge). Unemployment rates barely moved, higher
by 10bps to 3.7% in 2018, unchanged at 3.5% for both 2019-2020, 3.7% and 4.5% in 2021 and longer-run respectively. Core inflation projections were
unchanged, 2.0% in 2018; unchanged at 2.1% 2019 onwards.
• Broadly unchanged path; VC leans hawkish; unchanged terminal and higher neutral. Sep’s Fed’s median expectations, 2018 = 2.375%
(unchanged); 2019 = 3.125% (unchanged; 5:4:7; 11/16 =<Median); 2020 = 3.375% (unchanged; 7:2:7); 2021 = 3.375% (5:4:7) and longer run = 3.00%
(+12.5bps; 2:6:7). This implies that policy will be at neutral in 2Q19 and tight thereafter. With regards to median voting patterns, hawkish/dovish
surprise for 2019, 2020, and 2021 requires 3, 1, and 3 voters and 1, 1, and 1 voter to flip, pointing to a dovish skew in 2019 and 2021 and a more
hawkish skew in 2020. Following a 12.5bps increase to 3%, longer-run projection are more anchored (requires 6 voters to flip hawkish, compared to
just 1 for a more dovish outcome). Number (remaining) of hikes in 2018, 2019 ,2020 and 2021 is 1-3-1-0.
4. Fed policy trajectory
Policy likely to follow guidance in 4Q18/1H19. Monetary policy is likely to follow Fed guidance in 4Q18/1H19, considering current
growth/inflation and labour market dynamics. Both the employment/inflation mandates are broadly met with policy, going forward, conducted with the
objective of sustaining the cycle (via further tightening in the next 6-9 months). Hence, the Fed will likely continue to tighten policy in 1Q18 (+25bps to
2.25-2.50%) and 1H19 (+50bps to 2.50-3.00%).
FFR decisions, on the margin, can be viewed through three key considerations, i) economic developments (data dependency) and hurdle to tightening,
considering degree of spare capacity (NAIRU, LFPR and inflation) – inflation at target, job gains being deemed (too) brisk with the unemployment rate
under-shooting NAIRU projections; ii) degree of accommodation (75bps to neutral at 3.00% according to dot-plot; monetary models imply around
100bps of buffer before neutral); and iii) orthodox central banking assumption of monetary policy lag.
Our framework of understanding Fed decisions have changed at the margin with point ii (concept of “neutral” becoming a drifting anchor) and iii (data
dependency; feedback from realised rather than positioning policy further into the future) likely to play a more diminished role under Chair Powell
(“pragmatism” over theoretical models; though with uncertainties over buy-in from more theoretically attuned Fed members) and as time decays. The
increased focus on data dependency will introduce higher uncertainties into markets’ perception of the policy path.
Just-in-time policy making. Going into 2H19, the policy outlook will become increasingly uncertain. The median Fed is projecting a further +75bps
increase in 2019 (3.25%), +25bps increase in 2020 (3.50%) and then a pause in 2021. Our expectations remain for another 50bps in 2019 with the FFR
hitting cycle terminal at 3%. As argued, we expect both domestic consumption (higher debt service and cost of living, slower pace of asset price
appreciation, low real income gains) and capital expenditure (higher debt service, elevated current spending vis-à-vis GDP, weakening domestic demand,
external uncertainties) to ease off, with the fiscal impulse peaking, financial conditions tightening, and impact of prior dollar strength. This should taper
labour market gains and keep inflation pressures benign. The extent of slowdown will be dependent upon the resiliency of private sector balance sheet
and the subsequent impact on demand. It is imperative that the Fed stays ahead in managing overall debt servicing costs (short-run implications on
demand; longer-run may short-circuit the feedback from demand to capital spending and future productivity), and limit the negative impact of policy on
overall growth.
5. USTs, Scenarios
1. So far so good and all is well. As per guidance, the Committee will likely lean towards hiking insofar as the labour market remains robust
(unemployment stable/falling), inflation near/above target, growth stable, coupled with a balanced risk profile (regardless of ex-ante perceived
“neutrals”; no model outputs as anchor), with FFR passing neutral by 3Q19 (real FFR, =>100bps) and tightening further by 2020 (real FFR, 150bps).
This will enable the Fed to sustain the expansion, by getting ahead of the labour market under-shoot and containing inflation, before moving back
towards neutral with growth at target. End of cycle is likely to be caused by a build-up of fundamental fragility with time, leading to a break in the
economic equilibrium. This scenario assumes certain degree of macro-economic resiliency, provide scope for productivity improvements (higher real
rates), and anchoring (higher) inflation expectations. This is probably the Fed’s best hand (balancing the need to be reactive vis-à-vis pre-emptive).
Rates should predominantly be driven by higher risk neutral with term premiums anchored (risk market friendly outcome); curve flattener with 5T
and 10T capped by expectations of front-end FFR and terminal, <=3.25-3.50%. Scope remains for transition into curve steepening with higher long
rates on realisation of higher productivity, pushing real potential growth and real neutral rate higher (front end pushing long end higher,
subsequently, long end dragging short end higher; economic cycle extended).
2. Fed behind the curve. The Fed lose control of the labour market, unable to rein in the under-shoot, leading to higher wages with no productivity
offset, margin compression and partial pass through to higher inflation. Term premium rises on a Fed that is deemed behind the curve. Fed changes
tack and guide for higher rates, pushing risk neutral higher, in order to anchor term premiums, inverting the curve on a higher perceived terminal
but still low neutral; curve steepener to curve flattener with low real neutral – long rates can trade >3.50% - depending on magnitude of imbalance,
Fed’s subsequent reaction and perceived loss and recovery in policy credibility - but should remain bounded; short end can rise substantially. The
combination of high terminal and low neutral will have a significant adverse impact on risk markets.
3. Structural changes starts to bind; no escape velocity. Growth and inflation starts to taper off as i) boost from the fiscal stimulus fades; ii) prior
monetary tightening starts to bite; and iii) the downward pull from unresolved US (credit, wealth-driven economy; skewed labour/capital share) and
global imbalances (Euro-zone fragmentation, internal balance; China de-leveraging while approaching balance sheet limits, re-structuring; EM
stresses). This should be reflected in a peak in growth and inflation soon, coupled with a slowdown in labour gains as demand weakens. The Fed
should pause/reverse the tightening cycle, in order to lower short rates to anchor longer-run risk neutral and term premiums. 5T and 10T should
ease and re-anchor at a new perceived neutral and terminal (<2.50%). High valuations of markets will ensure that risk markets perform poorly on
the turn in the cycle.
6. USTs, Views (1)
Markets currently are trading on scenario 1. Further upside surprises in estimates are required to push out the Fed’s FFR forecasts, within a base
case of no growth/inflation disappointment (2018/2019 GDP, 3.1%/2.5% and Core PCE, 2.0%/2.1%). Near term outlook will be driven by i) market
expectations of the degree of slack in the US – Fed ahead/behind the curve; ii) real-time reassessment of perceived secular fundamentals (where all the
secular stars will be – r*, U*, Y*; separation between secular (neutral) and cyclical (terminal)); and iii) re-calibration of the level of Fed put – central
banks’ reaction function and market perception vis-à-vis required magnitude and persistency of market stresses. Understandably, narratives have pushed
the balance of risk towards higher yields.
Our base case remains 3. We like rates structurally, both on adequate valuations (breakeven levels: 5y, 3.55% (2.98%); and 10y, 3.36% (3.09%)) and as a
hedge for risk assets, taking the under on the (largely) priced base case of a smooth 3 year (2018-2020) rate hiking cycle. Based on our macro risk-neutral
model and pure expectations, we see 1.80-2.50% and 2.10-2.30% on the UST 5 and 10. Our view is to stay long on the UST 5-10y, prefer 7y; tactical view
suggests range trading, 10T around 2.80-3.20%, into 1H19 (Fed hikes by 75bps to 2.75-3.00% by 1H19; anchor extent of rates rally; near term upside
risks of a Republican sweep of the mid-terms, providing the President and the Republican Party with another opportunity to pursue even looser (pro-
wealth) fiscal policy. Risk neutral have scope to re-price lower with real risk-neutral 5y5y at close to 1.4% (compared to Fed’s 100bps; 60bps off 2005-
2007 bubble years and already surpassing 2008’s level, assuming unchanged term premiums), premised on a peak in growth/inflation into 2019,
considering the cumulative impact of prior and prospective monetary tightening (into financing costs), a turn to negative in the fiscal impulse, amid more
subdued global demand considering the tightening in financial condition (ex-US; more limited in the US) should start dampening the economic outlook.
7. USTs, Views (2)
We will not seek to drink the Kool-Aid, until more visible changes in the make-up of
growth suggests otherwise (sustainably higher capex, productivity, labour share of income,
more sustainable nature of global demand, easing debt burdens). We maintain that private
sector debt loads remain too high to withstand sustained higher interest rates. We believe
that current growth drivers are cyclical (fiscal policy will have a transitory impact on the
economy via demand channels with spending targeted at wrong segments of the economy),
not structural, and that latent secular dis-inflation impulses remains. To repeat, certain
factors underlying the US (and global) economy seems highly persistent, a structural
reflection of the current global growth model/political paradigm/broken models
everywhere; Phillips curve (lower cost labour driven growth; no productivity); r* on
consumption and investment and thus not transient (non-linear, easing have limited
impact/tightening massive); a lack of substance in global re-balancing; rise in oligarchy);
continued dependence on orthodox global central bank policy put – continues to suggest
that one can ultimately position for the scenario of a shortened rate hiking cycle as limits
are reached once cyclical strength fades. We maintain our view of a neutral no >2.5%
(markets already higher).
The narrative of omnipotent central banks will be severely tested, considering that
monetary policy will have limited traction on growth outcomes, going forward
(wealth/debt-driven consumption/investment via credit/portfolio re-balancing/signalling
limited by debt-servicing/asset valuations – defaults/sell-off required first; broken
monetary models); fiscal, FX, reforms will be required as policy tools (no stable global
equilibrium – secular stagnation).
-1.0
-1.2
0.4
0.1 0.1
0.7
-1.5
-1.0
-0.5
0.0
0.5
1.0
2018 2019 2020 2021 2022 2023
%Potential GDP Chng in Cyclically-adjusted Fiscal Policy
-800
-600
-400
-200
0
200
400
600
1Q93 1Q97 1Q01 1Q05 1Q09 1Q13 1Q17
bps Growth spread-to-Interest Expense
% GDP
BBB Corps
5Y Interest
Cost, UST +
Spreads
Non-fin
Private
interest
expense
Excess
spread over
GDP
5Y 3.92 5.70 -0.30
1Y5Y 4.08 5.94 -0.54
2Y5Y 4.13 6.01 -0.61
3Y5Y 4.16 6.05 -0.65
4Y5Y 4.18 6.08 -0.68
5Y5Y 4.21 6.12 -0.72
GDP Growth 5.40
8. Rates markets
Rates markets are broadly priced for 2018/2019, off by 25-50bps, with a pause expected
close to 3.00%. Marking-to-market the better growth/inflation outlook and rolling prior
rate hikes, the UST curve shifted higher with the curve up by 50-100bps with a flattening
bias. YTD higher 10T is predominantly driven by higher implied real growth (50%), and to a
lesser extent break-evens (30%) and term premiums (20%). Based on Fed’s projections, the
risk-neutral fair value of the US5T and US10T is at 3.05% and 3.02%, compared to spot of
2.98% (+7bps) and 3.09% (-7), excluding term premiums. Our internal models based on
spot nominal GDP (2Q18: 5.4%) suggests US5T and US10T FV at 3.14% and 3.20%. Markets
have re-priced long run expectations of neutral, with the real risk neutral moving to 1.25-
1.50% (Fed forward estimate approx. 1.0%; nominal GDP assumption around 3.8%; PCE at
2.0%). We deem the UST curve well-priced. Longer–run rates are anchored by markets
expectations of terminal and neutral around 3.00-3.25%. Sell-off will be led by higher term
premiums with real neutral and break-evens adequately priced (unless real growth/inflation
take off in a sustainable manner).
2.375
3.125
3.375
3.000
2.52
3.02 3.01
3.26
2.37
2.81
2.72 2.80
2.56
3.08 3.02
3.27
2.67
3.13 3.15
3.38
2.43
2.91 2.93 2.98
2.25
2.80 2.85
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
2018 2019 2020
% FOMC 1M UST FRs 1M OIS 1M Swaps Euro-dollar SOFR FFF
Longer run
2.00
2.25
2.50
2.75
3.00
3.25
3.50
Current 3M 6M 9M 1Y 2Y 3Y 4Y 5Y 10Y
Foward Curves, % 1Y 2Y 5Y 10Y 3M
Year Fed Path Current
Fed Path,
Risk Neutral
Breakeven
Chng, bps
2018 2.375 5y 2.98 3.05 72
2019 3.125 10y 3.09 3.02 39
2020 3.375
2021 3.375
2022 3.000
2023 3.000
2024 3.000
2025 3.000
2026 3.000
2027 3.000
-2
-1
0
1
2
3
4
Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17
Real Risk Neutral, %
Mkt perception of equilibrium real FFR
5y 10y 5y5y