FED: Daly, Barkin See Contrasting Impacts Of Uncertainty
Apr-01 20:15
A contrast in the readings of both soft/anecdotal and hard data by both an FOMC dove and a hawkish-leaning member today suggested that the Fed has no firm conclusions about the way the next few months are going to pan out in terms of government policy and the private sector response. They appear to be seeing and hearing different things anecdotally and in the data. Overall, it seems to reinforce that the FOMC is nowhere near reaching a decision to cut rates - and suggests that as we look forward to Chair Powell's comments this Friday, we are unlikely in the near future to get a significant steer on the path ahead.
- SF Fed President Daly wrote overnight that "during my visit [to Fairbanks, Alaska], I saw how businesses and households are managing uncertainty around trade and fiscal policy. Businesses and consumers are still making plans and moving forward. And most of the people I spoke with recognize the fundamental strength and resilience of the economy. They are leaning into solid demand, a good labor market, and lower interest rates. This is very similar to what I’ve heard across the Twelfth District. Overall, businesses in the region... are continuing to invest and participate in the economy. Right now, my assessment is this: uncertainty isn't causing paralysis."
- This can be interpreted through the lens of the data not showing signs of weakness just yet, with last year's rate cuts feeding through to activity - as such the burden of proof is more on inflation than on employment at this point (Daly last week: "One hundred percent of my focus is on what's happening with inflation"). Still, she sees 2 25bp rate cuts this year as "reasonable", suggesting that if the growth outlook were to deteriorate more than she expects, she could see more cuts (last week she said confidence has "gotten a little shaky of late; it could end up being that translates into changes in hiring plans, etcetera that could slow the economy more that we would like to see, and put it into a situation where there's more challenges and that would call for maybe a different posture.")
- Richmond Fed President Barkin took a slightly different angle this morning, saying that while GDP was a little softer in Q1, "the numbers are not really the story. The story is uncertainty....what are you going to do in the fog? And I talked to businesses, I've talked to consumers. And it's even true for the Fed. You don't know where policy is going to land. You don't know what the implications of that are going to be. And it's very hard to make investment decisions, hiring decisions, spending decisions with that amount of uncertainty. And so, you know, financial markets will tell us what they think as opposed to me telling them. But I have to think that part of the flattening of the rate curve has been pricing in more recession risk."
- He probably has a more hawkish stance on rates (zero or one cut this year, based on his previous comments) than Daly, despite her apparent lack of concern over the economy.
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US OUTLOOK/OPINION: A Stacked Week Ahead For US Macro
Feb-28 21:45
- Next week sees a series a key risk points, starting with trade policy and Trump’s Mar 4 deadline for an additional 10% tariffs on China (for 20% total) and the imposition of the delayed 25% tariffs on Canada and Mexico. US Treasury Sec Bessent offered a potential offramp here, saying Friday afternoon the US wants to see Canada and Mexico match tariffs on China. Whilst following through with that could see temporary de-escalation in US trade tensions with Canada and Mexico, it would likely stoke greater likelihood of China retaliation and/or further fiscal support.
- It’s bookended by ISM manufacturing (Mon) and services (Wed) reports, watched to see whether sharp increases in manufacturing prices paid seen in other surveys first show up in this broader measure and whether there is sign of spillover to services.
- The main data release of the week comes on Friday though, with the nonfarm payrolls report for February.
- The January report saw a modest miss for nonfarm payrolls but it was more than offset by a robust two-month net revision along with a smaller than expected benchmark revision. Further, the unemployment rate again surprised lower at 4.0% for its lowest since May 2024 in a further step away from the 4.3% the median FOMC member forecast for 4Q25 in the December SEP.
- Early days for the Bloomberg survey see nonfarm payrolls growth at a seasonally adjusted 155k in February and for the unemployment rate to hold at that lower 4.0%.
- Note that the nature of the DOGE “deferred resignation program”, with some 77k federal employees accepting the offer, shouldn’t see any direct impact on payrolls growth (in the establishment survey) until the October report as workers will remain on the payroll in the interim. One area where the direct impact could show however is the household survey. Assuming those who accepted the offer are treated as equivalent to a furloughed worker, they’ll register as unemployed. A word of caution though, it’s a much more volatile survey, with a 90% confidence level of +-600k for employment vs +-136k for payrolls.
- Note that post-payrolls Fedspeak sees a notable addition this time, with Fed Chair Powell set to talk on the economic outlook with both text and Q&A, starting at 1230ET. Data and tariff deliberations should still set the tone, but at this juncture we wouldn’t be surprised to see a continued call for patience in rate cut expectations considering dovish repricing seen over the past week. This is a theme that could be seen from other notable Fedspeakers throughout the week, including permanent voters Williams, Waller and Kugler.
STIR: Significant Dovish Repricing In US Rates This Week
Feb-28 21:14
- The softer growth outlook has dominated signs of renewed inflationary pressures this week - see a key summary of the week's macro developments in the MNI US Macro Weekly here.
- Fed Funds futures have a next 25bp Fed cut now fully priced for June and over the week have added nearly an entire 25bp cut over 2025 with a cumulative 70bp of cuts vs the 50bp implied by the median FOMC dot in Dec.
Significant dovish adjustment over the week:
MACRO ANALYSIS: MNI US Macro Weekly: No Escaping Tariff Distortions
Feb-28 21:12
- We have published and e-mailed to subscribers the MNI US Macro Weekly offering succinct MNI analysis across the range of macro developments over the past week.
- Please find the full report here: https://media.marketnews.com/US_macro_weekly_250228_3f0cf485bb.pdf
