Before we go into the #GDP details, let's delve deeper into the #recession data.
Since 1954 there were 10 recessions and ALL came after the #Fed hiked rates.
There were only 3 instances when their hikes didn't cause a #recession: 1) 1961-1966 2) 1983-1984 3) 1994-1995
2/22
During the latest hiking cycle the #Fed added 425 bps in 9M.
The highest they ever managed to hike in 9M without causing a #recession was (only) 190 bps.
IOW soft landing with this amount of hikes has never happened!
3/22
The #Fed officials keep talking about further hikes going to 5%+ terminal rate and keeping it there until at least 2024 - "higher for longer"
The last time they hiked to that level, they caused the most severe #recession (the GFC) since the Great Depression.
4/22
In 2 yrs from 2004 to 2006 the #Fed hiked 425 reaching 5.25% and kept it there for 1 yr until they started cutting again.
The #recession they caused was so large that they had to introduce (unprecedented) ZIRP, CE and QE, as well as bail out troubled financial institutions
5/22
Worth to note that the #Fed hikes prior to the most recent cycle were done with expanding M2.
Today situation is different bc M2 has been contracting since May 2022.
Net exports slowed substantially (+0.56% vs +2.86% in Q3) with falling exports (-0.15% vs +1.65 in Q3) and lower imports growth (+0.71% vs +1.21% in Q3).
As I mentioned before this is due to an inverse J-Curve in a stronger #USD environment.
Government consumption (+0.64%) had virtually identical impact as in Q3 (+0.65%).
Overall, consumption of services is easing, while consumption of goods only picked up due to motor vehicles, food and gasoline as a direct result of lower prices of these products.
Pickup in goods consumption is probably unsustainable bc vehicle demand is largely driven (not by price levels but) by the availability of the credit and credit conditions have tightened a lot with the #Fed hikes.
Also there is only so much of food ppl can consume.
Gasoline consumption can be volatile picking up when prices are going down, and not necessarily rising if the prices go back up or remain where they are for some time.
Given the trend and rate levels nonresidential investments could go negative in the coming Qs.
Government could try to increase their spending as a way of offsetting the negative impacts of other #GDP components
but with 10Y at around 3.5% issuance of new debt has become quite more expensive compared to around 1.5% levels a year ago.
15/22
Although 3.5% is somewhat less than 4.2% we had seen 3M ago, this is still a significantly higher rate than what the government had in prior years.
So unless the #Fed cuts substantially, the government's impact on the #GDP will likely remain limited.
16/22
This pickup in aggregate demand is likely temporary and unsustainable.
Consumption, investments and net exports will likely fall in the coming Qs, while government spending likely won't be enough to offset the overall decline.
At first glance, Nov #CPI was somewhat better-than-expected report (headline MoM slightly lower than expectations -0.1% vs 0%) and mostly in line (YoY headline, as well as MoM&YoY core).
But in the details #inflation is much weaker than gets recognized.
A thread.
1/17
Unadjusted headline #CPI is down for the 2nd M in a row with -0.31% which is the lowest print since Apr 2020 (-0.67%).
In the last 8 yrs there were only 2M with materially lower prints (Apr 2020 and Jan 2015 -0.47%)!
2/17
Unadjusted headline in Dec 2022 (-0.31%) is the 6th lowest in 8 yrs but 3 of these prints were almost identical (Dec 2018 -0.32%, Nov 2018 -0.33% and Dec 2015 -0.34%).
In Apr 2020 the economy was on forced lockdown, and in 2015/late 2018 #deflation was a problem.
This week we get the 2 most important things that will end this year: 1) FOMC meeting on Wednesday 2) November #CPI report tomorrow that will likely determine what we'll hear by the #Fed on Wednesday
Earlier many disagreed saying the #Fed needs to go to 4, 5, 9%... to "kill" the #inflation but, just as I was saying, it turned out the #Fed can't do a thing to this #inflation as it's running its course no matter what the #Fed does.
In the details this was a good report. MoM unadjusted: 1) Food +0.7%, same as Sep 2) Energy +1.0% vs -2.6% in Sep due to higher gas prices (+3.1% vs -5.6% in Sep), while #electricity and #natgas went down (-1.3% and -4.0% respectively vs +0.8% and +2.6% respectively in Sep)
2/18
3) Apparel unexpectedly went down by -0.6% vs +2.2% in Sep 4) New vehicles edged up to +0.5% vs +0.4% in Sep 5) Used vehicles and trucks -2.3%, slower than in Sep (-4.2%) 6) Medical care commodities -0.02% vs -0.09% in Sep 7) Alcoholic beverages +0.8% vs +0.1% in Sep