26 Sep 2022

Fed Indirectly Signals Recession

When the Federal Reserve raised interest rates last week, they also published their Summary of Economic Projections, which you can find here. You won’t find the word ‘recession’ in the document, but there is a pretty strong signal that the Fed thinks a recession is on the horizon in 2022. The second page includes a nice table that shows what the Federal Reserve Board members and presidents estimate for economic… Read More

19 Sep 2022

Core Inflation Knocks Market

Stocks sold off sharply this week, as noted above, mostly because markets had anticipated good news on the inflation front and didn’t get it. When I first saw the release, I thought it looked pretty good because the headline rate of inflation was only a tenth of one percent for the month, which brought the rolling one-year rate down to 7.8 percent.  While 7.8 percent is still far too high,… Read More

29 Aug 2022

The Word From Jackson Hole

In the 1970s, the Federal Reserve Board of Kansas City put on a series of three-day symposiums and invited economists, central bankers, and journalists to the Great American West to discuss the day’s topics. Former Fed Chair Paul Volker, who famously broke the back of inflation, liked to fly fish, so he steered the conference to Jackson Hole, Wyoming, in 1981, where it’s stayed ever since. The event became a… Read More

15 Aug 2022

Fed Tightening and Stocks

While inflation may or may not have peaked, Federal Reserve officials are still talking about raising interest rates. Several Fed officials called for rate hikes through 2023, and St. Louis Fed President said that the overnight rate should be four percent by the end of this calendar year (it’s currently between 2.25 and 2.50 percent). Although the Fed is already raising rates, a process also known as tightening, I wondered… Read More

18 Jul 2022

Looking at Inflation, Backwards and Forwards

After quietly lying dormant for several decades, inflation is today’s big story in economics and markets. We all feel it at the grocery and pump, not to mention airline tickets, which are up more than a third from a year ago. It’s also dictating central bank policy, here and abroad, and everyone is rightly wondering whether that central bank policy will push global economies into a recession if it hasn’t… Read More

27 Jun 2022

The Chance of Recession

Last week, I promised to discuss the odds of entering a recession in more depth and suggested that a financial crisis is less likely this time (but you never know). If you missed it, you can read it here. I also referenced a talk I saw by local Fed official Bill Emmons, who highlighted the possibility of a recession in 2018. He wasn’t right about that (well, he only said… Read More

21 Jun 2022

And Now: Some Good News

The most salient question today is whether or not the US and the rest of the world will enter a recession. The answer, of course, is that, at some point, we will enter a recession. I think that a much harder question is when we enter a recession. I’ve heard a few people say that we’re in one now because the first quarter’s Gross Domestic Product (GDP) was negative, and… Read More

11 Apr 2022

Economists Estimate the Probability of Recession

In the market summary above, I referenced the fact that the yield on the ten-year Treasury note is back above the yield on the two-year Treasury note. There was a relatively brief period where that wasn’t true, and a lot of consternation in the media and among investors that the inverted yield curve (when the shorter-term yield is higher than the longer-term yield) meant a recession was coming. In my… Read More

28 Feb 2022

The Market Response to Russian Invasion of Ukraine

It feels callous to discuss the market impact of the Russian invasion, amid the human tragedy of people fleeing their home country in the first land war in Europe since WWII. But this is a market newsletter, and the invasion, like previous geopolitical shocks, is having a material impact on markets. Perhaps the first thing to recognize about the Russian invasion is that it didn’t happen in isolation, meaning that… Read More

22 Feb 2022

Another Bond Market View of the Economy

A few weeks ago, I was in a meeting and someone said, “why talk so much about the bond market? Who cares?” Of course, we care about the bond market because 30 percent of the money that we invest is in bonds, so we are bound to keep track of it. And, as former bond traders, it feels natural. I understood the question, though, because the stock market is where… Read More