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Rick Rieder

@RickRieder

Aug 23

In his conference speech today @federalreserve Chair Powell delivered a jumping off point for a shift in monetary policy that would start to bring the Fed Funds rate down at the next FOMC meeting in a couple of weeks.

Specifically, his description of a more balanced economic condition, which has largely normalized and is consistent with pre-Covid growth and inflation levels, sets the stage for such a change in policy.

The Fed has been waiting to gain more confidence in those parameters being in place, and today’s comments suggest that the time has come, as the Chair explicitly stated.

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Rick Rieder

@RickRieder

Aug 19

CIO Charts of the Week: We believe the recent return of chaotic markets likely has its origins in onerously tight policy, which has created increased vulnerability to crowded positioning and stretched valuations for risk.

With the benefit of hindsight, we would note that the first foreshadowing of fragility may have been SOFR spiking on July 2.

Shortly thereafter, the US Tech sector, which had risen to >20% above its 200d moving average, reversed dramatically on the largest ever 1-week small cap > tech outperformance!

Next, an earlier-than-expected Bank of Japan hike in policy rate set off a +5 standard deviation move in the Japanese Yen as investors rushed to close this popular carry trade.

Read 6 tweets

Rick Rieder

@RickRieder

Aug 14

Today’s CPI report confirms a trend that has been in place for a number of months: inflation moderating to a more normalized run rate level of price gains, and one that should continue to build confidence for the @federalreserve that this part of its mandate has been durably tamed.

Therefore, we think today’s and other recent data open the door for a September beginning of a rate cutting cycle.

Today’s core CPI reading of 0.17% month-over-month and 3.17% year-over-year was relatively close to the market’s expectations, and continues to depict a slowing of inflation, particularly in apparel and used cars and trucks.

Read 14 tweets

Rick Rieder

@RickRieder

Jul 12

A Deep Dive on Recent Data: While headline CPI data printed at -0.06% month-over-month and Core CPI printed at 0.06%, the real story of today’s CPI print lies in the services components. June represented another month of very low Core Services (ex-Shelter) readings, which has completely reversed the acceleration seen in the 1st quarter, and is now under the Fed’s 2% inflation target on a 3-month annualized basis 1/

Earlier this week @federalreserve Chair Powell delivered testimony before Congress that underscored the progress that’s been made in both bringing labor markets into better balance after the severe pandemic-era disruptions, and improvements achieved in taming the high inflation rates of that period as well- a narrative which today’s data continues to support. 2/

Looking at other inflation metrics, the Fed’s favored measure of inflation, core PCE, increased 0.08% in May, bringing the year-over-year figure for the measure to 2.57%, as of that month, while the @DallasFed’s trimmed mean measure of PCE inflation, printed at 2.79% year-over-year in May. 3/

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Rick Rieder

@RickRieder

Jul 8

In a market that’s become obsessed with election results and the question of who will take on the job of leading some of the largest developed market countries, such as the U.S., France, and the U.K., last Friday we had a day of respite to focus on the broader employment picture for the U.S.

What that #JobsReport showed us was that while political officials seem to be extremely focused on their own employment prospects, there is a very gradual, but persistent, moderation within the broader employment picture.

After a stronger than expected May report that seemed to contradict some slowing in other employment indicators, such as the JOLTS, ISM, Claims, and ADP data, this recent report depicted what appears to be a more consistent trend of slowing, while still decent, labor demand.

Read 12 tweets

Rick Rieder

@RickRieder

Jun 13

Why is the savings rate so low today? Debunking a common myth on ‘Excess Savings’…

There are several widely circulated ‘Excess Savings’ models that show the U.S. Consumer having spent down the above-normal savings accumulated during the pandemic. These models, which are ultimately only illustrative in nature, implicitly assume the natural Savings Rate is ~8% or higher. We believe those assumptions are far too conservative and fail to acknowledge the elevated levels of household wealth today. In fact, we would say that as compared to arguing all Excess Savings are depleted (orange line below) it is more reasonable to argue there has been no depletion of Excess Savings at all (purple line below). Of course, as with most things, the right answer is probably somewhere between the extremes and we believe it is best to look at a range of outcomes.

1/4

How could it be that Excess Savings have not been depleted at all? While many things can influence the Savings Rate (especially anything that affects consumer psychology in a big way), the primary driver in the U.S. over the past 40 years has been wealth (as measured by Net Worth/Disposable Income). It is intuitive that as households experience higher wealth, they feel less need to save. This relationship was crystal clear from 1985 – 2010. The post-GFC period saw a psychological shift towards higher savings, but the relationship returned once the economy finally recovered in 2018. For anyone wondering why the savings rate is so low today, look no further than the new highs in Net Worth/Disposable Income.

2/4

We can see this confirmed when looking at Household Deposits as well, which was brilliantly depicted by Cameron Crise from Bloomberg @markets. Household Deposits as a % of GDP remain well above trend and higher than anytime outside the pandemic in over 40 years. In conclusion, we believe that high levels of Net Worth/Disposable Income and still high levels of Household Deposits will allow for a lower natural Savings Rate and a stubbornly resilient U.S. Consumer.

3/4

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