Pop Quiz
The markets are pushing rate hikes, and longer maturity real rates are at levels that are typically associated with equity market corrections.
This week’s note is on the shorter side; we got roped into playing a golf match on Sunday after the member guest tournament. Needless to say, we will be chained to our desk this week amidst a really big week on the earnings, policy and economic front. Have your coffee ready next Saturday morning, next week’s note will be thorough.
Barry Knapp: The AI Trade is Nearing an Inflection Point - Clear Commodity Network
Pop Quiz
In the absence of forward guidance, market participants, spurred on by Fed watchers, have presented Fed Chairman Warsh not so much with his first test, let’s call it a pop quiz, by pressing fed funds futures lower to a 100% probability of a 25bp rate hike in September and another 25 bp in December. While the probability of a hike in July remains below 50%, it moved up sharply from single digits to 38% during a week devoid of incoming data on inflation or employment other than a lower-than-expected weekly jobless claims report, most likely due to screwy seasonal adjustment factors. Calls like former NY Fed President Dudley’s for rate hikes to repair Fed credibility do not resonate with us; we continue to see no evidence of increased inflation expectations. Perhaps Alphabet’s capex plans played a role in the market implied Fed policy rate path given the FOMC participants who are unwilling to look through AI infrastructure demand price effects to the shift of the supply curve and productivity dividend down the road. Whatever the catalyst, Fed Chairman Warsh is faced with his first awkward press conference, unless we’ve been misreading his intentions and he supports an increase in the policy rate.
(BN) Fed Faces Growing Pressure to Hike Rates as Price Risks Rebound
The prices the authors of this inane Bloomberg story are referencing are oil prices, apparently these reporters never learned to not go full Trichet and hike policy rates in response to oil price supply shocks.
