Newsletter

Long time readers of our newsletter know that we are not fond of market narratives – stories built on an ounce of truth and a pound of nonsense. They are the modern equivalent of ghost stories… but for old(er) people. The latest narrative involves rising interest rates in the US. The story tellers begin with a 6-week chart showing rapidly rising rates and they tie the rise in rates to a new fear of fiscal deficits and tariffs. This is…

Last month’s Recession Watch newsletter highlighted VISA’s credit card activity index to get a sense of how the consumer is faring. This month, we take a higher-level view of spending and explain why bank lending is critical for economic growth. The chart compares the most recent lending data vs levels seen just prior to the COVID crisis. Total lending is currently growing at a 2.5% annual rate versus 4.7% pre-COVID. More importantly, consumer credit card lending is the only segment…

Over the past month, the economic narrative has finally shifted. At the annual Federal Reserve conference in Jackson Hole, Chair Powell expressed ‘greater confidence’ in the declining inflation data and the normalization of labor markets. Consequently, the financial media has started featuring a new group of experts who argue that the Fed might be acting too late. Are they right? Answering this question is difficult under normal circumstances, but this economic cycle is far from normal. The sophisticated models designed…

As we have chronicled, the underlying inflation data is showing persistent signs of weakeningwhile the headline numbers remained stubbornly high. Conversely, we have shown that whileeconomic growth remains strong, the growth is ever increasingly attributable to one sector of theeconomy – the consumer; or more precisely, consumer spending on services. Recent data releasessuggest that both inflation and spending are finally cooling. To continue with the soft-landing analogy (cliche?), we are in final approach but we arecaptained by a team with…

As the inflation story continues to drag on longer than anyone hoped or expected, we continue todissect it and present our findings to clients. In those discussions, a few questions keep surfacing. Here are a few answers: Inflation simply refers to the change in prices, typically reported on a year-over-year basis. Ifan apple cost $1.00 last year but costs $1.10 this year, the ten cent increase amounts to 10%inflation. However, if the price of the apple falls to $0.90, it…

As another day (week, month, year) of Fed Watching begins, we thought it would be useful to remind readers that CPI is not a mystical beast but rather a man-made system for measuring price changes across a basket of goods. These baskets are well known and their price indices are published each month. The CPI aggregate index tends to mask what is actually happening in the individual components. Journalists can’t see past the mask and their reports are misleading. They…

This past week, Fidelity® wrote about the likelihood of Fed rate cuts in 2024, despite higherthan expected inflation reports in January and February. We made a similar case to clients inlast quarter’s market update and felt the idea was worth repeating. The Federal Reserve closely monitors a wide range of economic conditions whendetermining its monetary policy. While inflation, labor conditions, and wage growth receivesignificant attention, there’s an often overlooked factor: real interest rates (or real yields). FedChair Jerome Powell has…