Nick Timiraos
@NickTimiraos
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Chief economics correspondent, The Wall Street Journal • Author, "Trillion Dollar Triage”
Joined July 2009
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How's this for an endorsement:
At the annual shareholder meeting, Warren Buffett urged people to buy Trillion Dollar Triage, my book about the economic-policy response to the Covid shock.
"It's a marvelous account of what took place."
Order your copy:
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NEW:
*Signature Bank has been closed
*All depositors of Silicon Valley Bank and Signature Bank will be fully protected
*Shareholders and certain unsecured debtholders will not be protected
*New Fed 13(3) facility announced with $25 billion from ESF to backstop bank deposits
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Fed governor Christopher Waller on the October CPI report:
"The market seemed to get waaaa-aaaay out in front.... I just cannot stress this is one data point."
"We've still got a ways to go."
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Fed hikes by 75 basis points.
New sentence in the FOMC statement signals more increases but hints at possibly smaller increments
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"It's not right."
The owner of a Maryland crab processor who voted for Trump is upset over a shortage of seasonal immigrant labor.
"Trump can fix it with his pen."
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Sen. Elizabeth Warren (D., Mass.) asks Powell what he would say to 2 million people losing their jobs if he keeps raising rates?
A testy exchange leads to this Powell redirect: "Will working people be better off if we just walk away from our jobs and inflation remains 5%-6%?"
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How should the government treat uninsured depositors after a bank run?
It's a question Jay Powell faced as an assistant Treasury secretary in January 1991, and it's recounted in my book (which is worth reading if you're interested in how Powell operates)
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This op-ed ran 8 years ago yesterday. The Dow is up 215.7% since then
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Donald Trump said he would have liked to hear from the wife of Khizr Khan. Here's what she said on MSNBC last night:
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The 3 takeaways from Powell's press conference:
1) The Fed could step down to a slower pace in Dec even if inflation data don't improve much
2) If there had been new estimates of the terminal funds rate released today, they would have moved up
3) Not ready to talk about a pause
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Fed research: The surge in retirements since 2020 "accounts for essentially all of the shortfall" in labor force participation rates
"More than half of the increase in the number of retirees appears to be a direct result of the pandemic."
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Goldman Sachs: “In light of recent stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its March 22 meeting with considerable uncertainty about the path beyond March.”
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Why the housing downturn of 2022-23 will look very different from the bust of 2006-09
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The Fed is barreling towards a fourth straight 75-basis-point rate rise at the November FOMC meeting.
That meeting could serve as a critical staging ground for future plans, including whether and how to step down to 50 basis points in December
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Consumers have a big cushion of savings. Corporations have lowered their debt-service costs.
For the Fed, a more resilient private sector means that when it comes to rate rises, the peak or “terminal” policy rate may be higher than expected.
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When the AP called the election
2012: 11:38 pm, Tuesday
2008: 11 pm, Tuesday
2004: 11:19 am, Wednesday
2000: No call
1996: 9 pm, Tuesday
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There is a saying that the Federal Reserve raises interest rates until something breaks. A big surprise over the past year had been that nothing broke.
No more.
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The Fed raised rates 25 bps
The decision was unanimous
The terminal rate projection is unchanged at 5.1%
FOMC statement modifies guidance: “The committee anticipates that some additional policy firming may be appropriate.”
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FOMC DECISION:
• Fed raises rates by 25 bps as expected
• Policy statement softens the rate guidance in a way consistent with past pauses
• Deletes reference to “some additional policy firming may be appropriate”
• Unanimous decision
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Powell is asked by Rep. Ayanna Pressley (D., Mass.) to answer a "yes or no" question on whether the Fed will pause rate increases.
Powell: "I don’t do yes or no."
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Question: Do you think the president has a grasp of macroeconomic policy?
Janet Yellen: No, I do not.
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Almost every hard landing looks at first like a soft landing
What's standing in the way of a soft landing now:
-The Fed staying too high for too long
-A too-hot economy
-A rise in oil prices
-A financial market rupture
"Planes land. Economies don't."
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FOMC: 50 basis point increase approved
-No changes to statement
-Most officials see rates ending 2023 between 5% and 5.5%
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A source close to the White House says today's breach of protocol by Trump wasn't due to a breakdown in process.
"It was a breakdown in his conduct."
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Goldman Sachs: “We have cut our subjective probability that the US economy will enter a recession in the next 12 months from 35% to 25%.”
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Greg Becker, the CEO of Silicon Valley Bank, was a director of the Federal Reserve Bank of San Francisco from 2019 until today
via
@michaelsderby
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Rates unchanged
FOMC statement gets a big rewrite.
Tightening bias gone, but in a way that says a cut isn’t necessarily imminent.
“The Committee does not expect it will be appropriate” to cut “until it has gained greater confidence that inflation is moving sustainably" to 2%
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Powell on changing the Fed's 2% inflation target: "We're not going to consider that under any circumstances."
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DNC leak gives Trump campaign opening to tie it all back to potential vulnerability of Clinton's personal servers
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New CPI weights changed the inflation picture slightly at the end of last year, showing somewhat less deceleration than before
Core CPI rose at 3-month and 6-month annualized rates of 4.3% and 5.1% in December, respectively, up from 3.1% and 4.6% under the previous price profile
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FOMC decision:
25 bps increase (approved unanimously)
FOMC statement:
Minimal changes to the forward guidance
“Ongoing increases” language is retained
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Fed officials are turning more cautious about raising rates too high now that inflation is finally showing signs of the rapid declines that they’d long anticipated
A rate pause in September will give the Fed more time to see if recent progress continues
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Powell, paraphrased: Despite many people believing (or hoping) the Fed's recent inflation projections were too high because inflation would come down faster, the Fed didn't see it that way and, given last week's job report, still doesn't.
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Fed officials are preparing to slow interest-rate increases for the second straight meeting.
They could begin deliberating how much more softening in labor demand, spending and inflation they would need to see before pausing rate rises this spring.
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The FOMC minutes provide next to no discussion around how much officials want to raise rates at the February meeting.
But officials did shout out their concern that an "unwarranted easing in financial conditions" could "complicate" their inflation fight
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Powell: "The question of when to moderate the pace of increases is now much less important than the question of how high to raise rates and how long to keep monetary policy restrictive."
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An incredible moment: The president of the United States says you can't always trust what his spokesmen say.
As a very active President with lots of things happening, it is not possible for my surrogates to stand at podium with perfect accuracy!....
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Powell is asked "Are you overdoing it?"
Powell's answer: "The historical record is thick with examples of underdoing it."
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The Fed faces one of its toughest calls in years: whether to raise rates again to fight stubbornly high inflation or take a timeout amid the most intense banking crisis since 2008.
“It’s going to be a tough decision with very tricky communications."
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Joe Biden has selected former Fed chair Janet Yellen to serve as the Treasury secretary
She would be the 78th secretary of the Treasury and the first woman to have the job w/
@KateDavidson
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FOMC Minutes: "Almost all" thought 25 bps was appropriate but a "few" favored or would have also agreed to a larger 50 bps increase.
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BofA: Clients are asking if we foresee an imminent shift from the Fed “given other central banks' actions and the sharp risk asset moves. We think these concerns are misplaced and that the Fed's job is still far from over. The Fed will keep hiking until the labor market cracks.”
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"I think the time is now to start talking about stepping down. The time is now to start planning for stepping down," said San Francisco Fed President Mary Daly during a talk at the University of California, Berkeley on Friday.
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Fed officials have clearly signaled plans to raise rates by 50 basis points at their meeting next week
Elevated wage pressures could muddy the debate over 50 v 25 in February and lead officials to pencil in more hikes next year
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NEW: The Fed and other global central banks announce an expansion in the frequency of dollar swap line operations.
The standing swap lines currently conduct weekly dollar loan operations. Starting Monday, they will offer daily operations
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Was it all "just supply" that caused inflation?
Fed governor Chris Waller is not having it.
"If these are temporary supply shocks, when they unwind, the price level should go back to where it was. It's not. Go to Fred. Pull up CPI. Look at that thing."
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Minneapolis Fed President Neel Kashkari says he penciled in another 100 bps in rate rises this year, for a terminal policy rate of 5.4%
This is despite "increasing evidence" that inflation may have peaked
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Powell makes one notable change to his opening statement in his delivery:
"If — *and I stress that no decision has been made on this* — if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes."
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Goldman Sachs reports that its intra-day estimate of U.S. financial conditions from its financial-conditions index eased by over 50 basis points today following the rally triggered by the October CPI print. That is the third-largest single day decline on record.
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Policy makers have to worry about “the next inflation problem.”
If the economy continues to add more than 200,000 jobs a month without a large increase in the labor supply, “whatever labor market tightness you have now would look worse in six months.”
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NEW: Borrowing at the Fed this week
+$148.3 billion – net discount window borrowing
+$11.9 billion – the new Bank Term Funding Program
Subtotal: $160.2 billion
+$142.8 billion – borrowing for banks seized by FDIC
Total: $303 billion
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Time needed to reach 50 million users
Telephone: 75 years
Radio: 38 years
Angry Birds: 35 days
http://t.co/idFbMNlD2Y
http://t.co/e2wOwgSFUJ
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Fed Chair Jay Powell’s public pledge to reduce inflation even if it increases unemployment appears to have put the central bank on a path to raise interest rates by 0.75 percentage point rather than 0.50 point this month.
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In Japan, inflation is rising, the yen plummeting, and some economists and executives blame the negative rate policy for eroded competitiveness and undisciplined government spending.
All that has put pressure on the Bank of Japan to finally raise rates.
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A research paper looks at intraday trading data to conclude "market volatility is more than three times higher during press conferences given by current Fed Chair Jerome Powell than during press conferences by predecessors Janet Yellen and Ben Bernanke"
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A new letter against Trump from 370 economists, including eight Nobel laureates (Deaton, Arrow, Hart)
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Jay Powell ditched his original Jackson Hole speech last month after markets turned excessively optimistic about an inflation turnaround and Fed pivot.
The one he delivered was shorter and nuance-free.
Inside the “single mandate” central bank:
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Stubbornly high inflation is finally easing as supply chain disruptions fade and interest rates at 15-year highs put the brakes on demand
But Fed officials have voiced unease that any disinflation might be short-lived because labor markets are so tight
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Economists at Nomura Securities have changed their forecast and expect a 100 basis point Fed rate increase next week (followed by 50 bps each in Nov and Dec):
"The August CPI report ... suggests a series of upside inflation risks may be materializing."
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Fed Chair Jay Powell taped an interview for 60 Minutes today that’s set to air on Sunday evening
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Where were the bank supervisors?
Banks almost never get taken over during business hours.
“A $200 billion bank should not fail because of liquidity,” says the former head of the Boston Fed. He says they should’ve been sold last weekend.
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Barclays: "We are changing our forecast to call for a 75bp hike on June 15."
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December CPI, three month annualized rates:
Core goods: -4.8%
Shelter: +9.2%
Services less shelter: 1.2%
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The October inflation report is likely to keep the Fed on track to approve a 50-basis-point interest-rate increase next month
Officials had already signaled they wanted to slow the pace of rises and were somewhat insensitive to near-term inflation data
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Statement from Yellen, Powell, Gruenberg, and Hsu:
"Today, 11 banks announced $30 billion in deposits into First Republic Bank. This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system."
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Biden says "annual inflation" is "down by nearly 30%" since summer.
While not technically wrong, it is awfully confusing to do a percent change of a percent change.
PCE inflation ran at 5% for the 12 months ending in February, down from 7% for the same period through June.
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Boston Fed President Susan Collins suggests she is ready to slow the pace of Fed rate increases from here.
Fifty basis points used to be a large move, she says.
She says it's too soon to say how high rates will need to go.
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NEW: Every living former Fed chair—Volcker, Greenspan, Bernanke and Yellen, who were named to lead the Fed by the last six U.S. presidents—have an op-ed in the WSJ warning of economic harm from Trump's threats to sack Powell
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Cleveland Fed researchers analyze the FOMC's most recent economic projections. Their model projects the FOMC's unemployment rate path brings core PCE inflation to 2.75% by 2025
"A deep recession would be necessary to achieve" the 2.1% inflation projection
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Powell: New data suggests “the ultimate level of rates is likely to be higher than previously anticipated"
“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes”
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Fed officials are raising rates rapidly despite some optimism that prices are coming off the boil because “they have absolutely zero confidence in their ability to forecast inflation,” says former Fed economist Nathan Sheets
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Core inflation as measured by the Fed's preferred index rose 0.17% in December, as expected
This is the sixth month in the last seven where monthly inflation has printed at a rate equal to or below the Fed's 2% target
YoY: 2.9%
6-month annualized: 1.9%
3-month annualized: 1.5%
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Core inflation ran at a 3.14% annualized rate in the October-to-December period, the lowest such reading in 15 months
It was 4.55% on a six-month annualized basis, the lowest reading since May 2021
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Senate Banking Committee Chairman Sherrod Brown (D., Ohio) asks Jay Powell to slow down interest rate rises in a letter one week before the FOMC meeting (and two weeks before congressional elections)
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St. Louis Fed President Jim Bullard: “The policy rate is not yet in a zone that may be considered sufficiently restrictive.”
His presentation says a rules based approach would suggest the rate should be somewhere above 5%, perhaps substantially so.
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Greg Mankiw endorses Paul Krugman’s view that the Fed might be tightening policy too aggressively
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JP Morgan: “If they indeed have used the right tool to address financial contagion risks (time will tell), then they can also use the right tool to continue to address inflation risks—higher interest rates. So, we continue to look for a 25bp hike at next week’s meeting.”
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NEW: Atlanta Fed President Raphael Bostic had to restate financial disclosures for the past five years and found violations—including more than 150 transactions during restricted “blackout” periods—because he didn’t understand his disclosure obligations
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The Powell pivot begins.
Dec 1: “It would be premature to … speculate on when policy might ease.”
Dec 13: Rate cuts are something that “begins to come into view” and “clearly is a topic of discussion.”
What a difference two weeks can make.
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Wall Street forecasters expect the August CPI to show the headline index rose 0.6% in July, boosting the 12-month rate to 3.6% from 3.2%
They see core CPI up 0.2%, lowering the 12-month rate to 4.3% from 4.7 in July
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Economists who have been anticipating lower inflation are now more confident in those forecasts because new apartment lease rents are decelerating
This will eventually feed through to U.S. inflation gauges, but not immediately
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Researchers at the Kansas City Fed say there’s evidence that the lags of monetary policy are shorter than they used to be due to more central bank guidance
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One of the big questions for the Federal Reserve this week: just how much will the banking crisis tighten financial conditions, which has been a principle objective of the effort to raise interest rates to combat high inflation
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Goldman says it sees a slightly longer string of 25 bps increases in '23 that will take the funds rate above 5% in May
Reasons:
1) Fiscal tightening has run its course
2) Inflation could remain "uncomfortably high"
3) Market overreactions prematurely ease financial conditions
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Fed Chair Jerome Powell is likely to caution on Capitol Hill that stronger economic activity could lead U.S. central bank officials to raise interest rates more than they have projected to combat high inflation
His testimony is out at 10 am:
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This front-page WSJ article showing how Russia's economy is decaying was Evan Gershkovich's last byline before his detention by the Russian security services on Wednesday
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Cleveland Fed President Loretta Mester: At the last FOMC meeting, “I saw a compelling economic case for a 50-basis-point increase, which would have brought the top of the target range to 5%”
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The Fed is trying to tighten financial conditions and keep them tight.
Talk about a Fed “pivot” can be confusing because a slowdown in the pace of hiking doesn’t necessarily mean an earlier end to hikes given the need to keep financial conditions tight
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Neel Kashkari, on investors' expectations of rate cuts:
“I’ve spent enough time around Wall Street to know that they are culturally, institutionally, optimistic."
Is it a game of chicken?
Kashkari laughs: “They are going to lose the game of chicken."
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The Atlanta Fed's Wage Growth Tracker, updated today, shows pay growth for job switchers moved up last month
Hourly wage growth rose 6.4% from a year earlier (unchanged from October) for all workers, but ticked up for job switchers—8.1% from 7.6%
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According to interest-rate futures tracked by CME Group, market-implied probabilities of a 50 bps increase at the March FOMC meeting before and after Powell's 10 am testimony:
9:58 am: 32% probability
10:09 am: 50% probability
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Revisions to average hourly earnings data paint a marginally less worrisome picture for the Fed on wages than the Nov report
The upturn in wage growth in Nov (originally reported as +0.6%) was revised (to +0.4%)
The 4.6% annual wage growth in Dec was the lowest since Aug '21
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Apartment rents fell in every major metropolitan area in the U.S. over the past six months through January.
Renters with new leases paid a median rent that was 3.5% lower than they would have paid last August
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St. Louis Fed research: U.S. fiscal stimulus contributed to excess inflation of about 2.6 percentage points domestically
It also was associated with 2.3 percentage points in excess inflation in Canada and 0.6 percentage points in the United Kingdom
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Takeaways from the Powell presser/FOMC today:
• Much less conviction about further hikes given what may happening with bank credit. Pay attention to "may" and "some" in the FOMC statement
• A significant minority of FOMC officials (7 of 18) now see inflation risks as balanced
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Powell put special emphasis on the category of core services inflation that excludes housing, given the potential for it to be stickier (and because housing inflation is set to slow)
Dec core PCE services inflation ex-housing:
+4.09% YoY
+4.04% on a three-month annualized rate
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U.S. home prices declined 0.3% in October, the fourth consecutive monthly decline, according to the Case-Shiller national index
All 20 cities in the U.S. index posted monthly declines
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The average 30-year fixed mortgage rate has been above 7% for the last three weeks, something that hasn't been seen since 2001
Applications for home purchase mortgages (meaning, excluding refinances) are down 40% on the year, per the Mortgage Bankers Association
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