There are increasing signs that the U.S. economy is slowing, but that shift should be characterized as an adjustment to policy changes rather than a move towards recession. Regardless of tariff developments, fiscal spending is declining and population growth is slowing. These two factors have been significant contributors to recent growth, and their moderation necessarily resets the expectation of U.S. growth lower. Incoming data will be weaker than the past to reflect this shift, and […]
The Fed's early discussions of its longer-term balance sheet sound hawkish but are unlikely to meaningfully impact market prices. QT is expected to end in the coming months, with some possibility of an abrupt end due to to debt ceiling concerns. After QT, the Fed will still have to manage a sizable holding of $6t in Treasuries and MBS. Fed officials are thinking of gradually shifting their portfolio to be exclusively in Treasuries, and to […]
There are some signs that suggest that a short term top is being put into equity markets. Retail traders have been active participants in recent years, but brokerage data suggests that they are maxing out their allocation. The recent surge in foreign investor inflows seems to be reversing as foreign equity markets significantly outperform U.S. markets. The Administration's efforts to reduce the fiscal deficit has been surprising effective look like they will have an impact […]
Trump's efforts to slim down the Federal government is having success and looks like it will a modest impact on the macro economy. The hiring freeze itself would lead to a 100k decline in the Federal workforce in a year, with the potential for larger declines should more policy oriented cuts be permitted. DOGE's technical expertise has shown promise in identifying questionable payments, and could lead to hundreds of billions in savings. The government itself […]
President Trump's large tariffs on Canada and Mexico do not appear to be a negotiating tactic and instead could be the first steps towards fulfilling his vision of a U.S. manufacturing renaissance. While the Biden Administration encouraged "friend shoring," Trump is only interested in onshoring. He has pushed for benefits to attract foreign business into the U.S., and has promised to discourage companies from manufacturing abroad. The tariffs are an incentive to the business community, […]
President Trump's plan to lower interest rates is through lower oil prices, which would likely push inflation close enough to target for more cuts. Trump is making efforts to lower oil prices through increased drilling and negotiations with OPEC, and is linking lower energy prices to an explicit demand for lower interest rates. Lower energy prices would directly lower headline inflation and marginally lower core inflation over several quarters. In addition, lower energy prices would […]
