{"id":1451263,"date":"2024-01-17T16:00:00","date_gmt":"2024-01-17T21:00:00","guid":{"rendered":"https:\/\/bugaluu.com\/news\/?p=1451263"},"modified":"2024-01-17T16:00:00","modified_gmt":"2024-01-17T21:00:00","slug":"fed-pressing-higher-for-now-against-markets-lower-and-sooner","status":"publish","type":"post","link":"https:\/\/bugaluu.com\/news\/fed-pressing-higher-for-now-against-markets-lower-and-sooner\/1451263\/","title":{"rendered":"Fed Pressing Higher-For-Now Against Market’s Lower-And-Sooner"},"content":{"rendered":"

Fed Pressing Higher-For-Now Against Market’s Lower-And-Sooner<\/span><\/p>\n

\n

Authored by Simon White, Bloomberg macro strategist,<\/em><\/p>\n

Retail sales data today further chiseled away at the odds of a March rate-cut, <\/strong>but the chance of reductions in subsequent meetings is likely to commensurately rise,\u00a0and thus flatten e.g. the April versus May spread in fed funds futures.<\/p>\n

<\/a><\/p>\n

\u201cWho knows best?\u201d is being played out again between markets and the Federal Reserve. <\/strong><\/p>\n

The market is of the (weighted-average) view that rate cuts \u2013 six of them \u2013 will be required this year.<\/p>\n

The Fed, at least going by Board of Governors member Christopher Waller in a speech on Tuesday, is not yet convinced<\/a>. He stressed there is no reason to move as quickly or cut as rapidly as in the past.<\/p>\n

The market reluctantly knocked a couple of basis points off the pricing for a March rate cut, but leaving the probability still at 60-65%<\/strong>. About six bps were knocked off expected cuts through the whole of 2024.<\/p>\n

Retail sales in the US have been buoyant in recent months, exceeding many expectations as pandemic savings were estimated to have been depleted by now (for those with a propensity to spend).<\/p>\n

Short-term leading data anticipates that real retail-sales growth should continue to rise…<\/strong><\/p>\n

<\/a><\/p>\n

…<\/strong>while other data that was hitherto negative for consumption, such as homebuyer affordability and mortgage rates (see chart below), have inflected higher.<\/p>\n

<\/a><\/p>\n

But the market is unlikely to give up on rate cuts so easily if perceived risks to financial stability are rising, <\/strong>which would\u00a0be coherent with\u00a0such a dovish outlook in the absence of a sudden deterioration in the economic data. Banks are\u00a0bringing forward\u00a0their tapering and end dates for quantitative tightening, while the Fed\u2019s reverse repo facility (RRP) continues to fall at an increasing rate.<\/p>\n

The chart below shows the domestic RRP and reserves. The horizontal dashed line is the approximate upper-end of where Waller believes the endpoint is for QT, which he re-iterated in Tuesday\u2019s speech as being about 10-11% of GDP.<\/strong><\/p>\n

<\/a><\/p>\n

No bank will want to run their reserves down to their so-called lowest comfortable level, preferring instead to keep a buffer.<\/strong><\/p>\n

As the system approaches the Waller target, perceived risks will rise, and buffers are likely to be increased.<\/p>\n

Reserves could go from abundant to scarce very quickly. <\/strong><\/p>\n

Under this lens, the greater expectation of rate cuts is the market\u2019s way of expressing that the risk outlook could quickly deteriorate.<\/p>\n

Thus even if a March cut is largely priced out, a cut in the May meeting is likely to be more priced in<\/strong>.<\/p>\n

As we noted yesterday,<\/a> this should keep pressure on the April versus May fed funds spread (which was 24.5 bps on Tuesday and is 23 bps today).<\/p>\n<\/div>\n

Tyler Durden<\/a><\/span>
\nWed, 01\/17\/2024 – 11:00<\/span><\/p>\n

\u200bRead More<\/a>\u00a0<\/p>\n

\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"

Fed Pressing Higher-For-Now Against Market’s Lower-And-Sooner Authored by Simon White, Bloomberg macro strategist, Retail sales data today further chiseled away at the odds of a…<\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[1],"tags":[],"class_list":["post-1451263","post","type-post","status-publish","format-standard","hentry","category-news","wpcat-1-id"],"jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/pbimBl-65xt","jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1451263","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/comments?post=1451263"}],"version-history":[{"count":0,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1451263\/revisions"}],"wp:attachment":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/media?parent=1451263"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/categories?post=1451263"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/tags?post=1451263"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}