Since the Fed started raising rates in March 2022, default rates have gone from 1% to 5%+
Source: Apollo, TME
SUMMARY OF FED MEETING MINUTES (11/21/23):
1. All Fed Members agree to “proceed carefully” 2. Fed sees rates “remaining restrictive for some time” 3. Fed sees upside risks to inflation 4. Fed sees downside risks to growth 5. Meeting by meeting approach to resume It's amazing how US markets keep pricing cuts. When the Minutes reiterate, yet again, that while the Fed are cautious they still have a tightening bias.
Ahead of Fed minutes... The market is now pricing in a 0% probability of a rate hike in December and rate cuts starting in May 2024
Source: Charlie Bilello
Fed monetary policy tightening (+525 basis points of interest rates hike + $1.15 Trillion of Fed balance sheet reduction) since 2022 has been quite brutal
2023 has been a miracle so far with headline inflation declining to 3% WITHOUT a recession and no increase in unemployment rate. But can it last? What could be the lagged effects of such a tightening? (chart courtesy of Tavi Costa)
NY FED recession probability is on highs
Unemployment is going up. Similar pattern was right before most previous recessions. Source: Wall Street Silver
Key Events This Week:
1. Fed Chair Powell Speaks - Wednesday 2. Initial Jobless Claims - Thursday 3. Fed Chair Powell Speaks - Thursday 4. Consumer Sentiment data - Friday 5. ~10% of S&P 500 reports earnings this week 6. Total of 12 Fed speaker events All attention remains on the Fed. Source: The Kobeissi Letter
The Fed is now expected to start cutting rates in May 2024
Here's how bonds have performed during prior rate-cutting cycles... Source: Charlie Bilello
The Fed's balance sheet hit its lowest level since May 2021 this week, down $1.1 trillion from the peak in April 2022
Annual changes in the Fed's balance sheet since 2002 by Charlie Bilello
