Believe it or not...
On December 14, the GDPNow model nowcast of real GDP growth in Q4 2023 is 2.6%.
Is Fed making the same error as the mid 1970s?
In the 1970s they also thought they had beat inflation in 1974-1975, they lowered rates and then inflation roared back to even higher levels in the late 1970s. Inflation on came down in early 1980s because of two factors. 1) massive new oil (energy) supply from Alaska, Gulf of Mexico, North Sea and huge new fields in Mexico coming online. 2) 18% interest rates crushed the economy. Source: Wall Street Silver
Unemployment rate in America from 1955-2023
Interesting how the unemployment rate tends to spike right after the Fed cuts rates. Suggesting that Fed policy easing is usually a negative signal for the economy. Not a positive one. Source: FRED, re:venture
The European Central Bank held interest rates steady for the second meeting in a row, as it revised its growth forecasts lower and announced plans to shrink its balance sheet
ECB's Lagarde: We did not discuss rate cuts at all BUT markets price in 5.3 cuts for 2024. “The Governing Council’s future decisions will ensure that its policy rates will be set at sufficiently restrictive levels for as long as necessary,” it said in a statement. Source: Bloomberg, CNBC
What a journey for Ireland...
Ireland has experienced unprecedented growth in prosperity in recent years. GDP per capita is now almost $100k, which is more than twice as much as in Germany and three times as much as in Italy. The small country with a population of 5 million has benefited from the large investments made by tech giants, who have settled here b/c of the low tax regime. No other country in Europe has a meaningful budget surplus, can set up 2 sovereign wealth funds, (Future Ireland Fund (FIF) and a smaller Infrastructure, Nature and Climate Fund (INCF) and has a war chest of €2.5bn before 3 important elections. Source: Bloomberg, HolgerZ
The Fed is still behind the curve...
The market is now pricing in a Fed Funds Rate of 3.8% by the end of 2024, expecting significantly more easing than the Fed's projection of a move down to 4.6%. Source: Charloe Bilello
Up the mountain and back down in the valley
Here's a look at the year-over-year percentage change of PPI (producer prices) ex food & energy over the last five years. Core PPI is back down to 2% for the first time since January 2021 after topping out at 9.7% in March 2022. Source: Bespoke
The Fed is finally giving up...
Fed holds rates steady but indicates three cuts coming in 2024. Indeed, the Dot Plot is adjusted down significantly more dovishly than expected, narrowing the gap to the market's expectation significantly... The US 10 year is down 20bp to 4%, the Dow surges by 300 points!
