Comfort with the Curves Figure 5: During 2022 the Phillips Curve went ‘vertical’, in other words wage growth cooled without any increase in unemployment. During 2023 and the first four months of ‘24 the curve appears to be normalizing to its theoretical construct, wages growth eased with rising unemployment. This will reassure the Fed that policy is inde… Read more ..read more

Monday at Noon Eastern we will be a guest on Barron’s Live weekly subscriber webcast Tuesday at 1 pm eastern we will be a guest on CNBC’s The Exchange with Kelly Evans Comfort with the Curves The important policy events this week — the Department of Treasury’s financing requirements and Quarterly Refunding Announcement (QRA), and the FOMC meeting — contained no big surprises, leaving the markets incrementally more dependent on cooler inflation and softer labor market conditions. Chair Powell’s press conference and the slightly larger reduction in the monthly cap on Treasury redemptions (QT) pr ..read more

Churn Collapse As we started digging into labor market data in preparation for this note, our Bayesian prior was that the stabilization of demand for labor at a relatively robust pace that developed in 1Q24, was likely to have continued in April. Initial and continuing jobless claims were remarkably (unbelievably) stable at low levels. The April ADP report was close to the consensus forecast for BLS private sector payrolls and March was revised up marginally. April Regional Federal Reserve manufacturing employment surveys were marginally weaker at contractionary levels, however the ISM manufac ..read more

This audio summarizes our note dated April 27, No Stag, Just Flation Figure 2: The belly of the curve has borne the brunt of the selling since March CPI. Barry C. Knapp Managing Partner Director of Research Ironsides Macroeconomics LLC 908-821-7584 bcknapp@ironsidesmacro.com https://www.linkedin.com/in/barry-c-knapp/ @barryknapp This institutional communication h… Read more ..read more

Scenario Analysis Perhaps the most interesting discussion of our week was with technical analyst John Kolovos about his view that the S&P 500 could have a 10% correction with cyclicals outperforming. Although we have a different process, we share his view and after several convoluted fundamental macro explanations, we arrived at a concise scenario analysis. In short, weaker expected growth is not the only reason the stock market declines. To be sure, earnings are the primary driver of stock prices over time, however in an inflationary regime, real rate shocks reverberate across asset class ..read more

This audio summarizes our note dated April 20, Unhealthy Broadening Out Figure 5: Financial conditions as measure by real rates were much tighter in 2006. Importantly, the household sector was extreme in 2006, now it is the government that is stretched. Excessive private sector debt is deflationary, government debt is inflationary. Barry C. Knapp Managing … Read more ..read more

When Chaos Hits the Fan One of our key themes for 2024 is that until and unless the FOMC begins a reasonably aggressive rate cutting cycle to our estimate of the natural policy rate at 4%, a ‘healthy broadening out’ of the technology-, industrial- and energy-led equity market rally to small caps, financials and rate sensitive stocks, was improbable. Strong March economic activity and inflation data from the ‘big four’ reports (ISM manufacturing, payrolls, CPI and retail sales) rendered null and void the thesis that the hot January and February reports were a statistical aberration attributable ..read more

This audio summarizes our note dated April 13, Macro Regime Change Figure 4: The rate of change is not the friend of the FOMC who is still itching to ease. Barry C. Knapp Managing Partner Director of Research Ironsides Macroeconomics LLC 908-821-7584 bcknapp@ironsidesmacro.com https://www.linkedin.com/in/barry-c-knapp/ @barryknapp This institutional communication… Read more ..read more

Macro Regime Change In the early stages of the pandemic, we concluded that policymakers and market participants utilizing the financial crisis as a model for the policy response were missing two major differences; the pandemic was an inflation and productivity shock, the antithesis of the financial crisis. The pandemic policy response accelerated several nascent related trends at different stages including inflation, a secular bond bear market, monetary and fiscal policy accommodation, supply chain derisking, a recovery in structures investment and accelerated technology innovation adoption. I ..read more

This audio summarizes our note dated April 6, Higher and Steeper Figure 6: S&P net revisions are grinding higher. Barry C. Knapp Managing Partner Director of Research Ironsides Macroeconomics LLC 908-821-7584 bcknapp@ironsidesmacro.com https://www.linkedin.com/in/barry-c-knapp/ @barryknapp This institutional communication has been prepared by Ironsides Macroecono… Read more ..read more