US Snapshot

Lets go over the detail in the most recent data releases and get a sense on the status of the economy and how it may move going forward and more so from the point of view of rates.

GDP:

In short things are slowing… but where and how/why?

The above shows the GDP with the key breakdowns… Within Fixed Investment a category called ‘Nonresidential’ (in particular the sub category of “Nonresidential Equipment”) saw a reduction of -0.12% on a weighted basis to the headline number. In addition to this we saw Exports drag down the headline on a weighted basis by -0.12%.

Exports might be explainable due to China demand slowing, concern for Trump policy. Fair to expect this pressure to persist!

CPI/PCE

Persistent inflation above the FOMC target… but still ‘slowely’ cooling

Now we know that the Fed’s preferred measure of inflation is PCE see above, while it has very much stalled its deflationary move in and around 2.75-2.85.

Interesting segments that are causing upward pressure are:
Financial Services And Insurance → Commercial Banks
Financial Services And Insurance → Portfolio Management And Investment Advice Services
Durable Goods → Furnishings And Durable Household Equipment

So Would have think that the FS&I elements are likely a result of the lead up the Trump taking office and wider economic uncertainty.

Hard to put a finger on the household items…. could be attributed to a strong dollar and the concern of future cost pressures that punters are getting what they want sooner and in great volume.

PPI:

Its relatively wider spread for PPI, there are pressures in the system that might very well be pushed on the consumers down the supply/consumption chain.

Labor Market:

Rather stable and in reasonable shape… but as we all know this one can change quick! However as seen below, the big brother to this data above is the old NFP and its trending down still and not at a alarming rate

But… the below chart keeps the fed up at night… unemployment… pretty clear where this is headed… However, the signs of pain are yet to show up in the supplementary labor data.

STIR:

The above chat show the Effective Fed Funds with some additional context seen with the 1yr expected inflation and the 1yr expected yield.

So this image says it all…. inflation is high now (as we know) and inflation in the near term is higher than the Fed wants or expects…. this is the simple reason why we are on a hold for the moment. As a result 12mth rate expectation are ‘V’ shaped… possibility of cuts soon and possibility of hike soon there after…. somewhat resulting in a relatively unchanged rate for 2025.

Conclusion