Fed Tightening Always Breaks Something, Importance of Credit Availability, China Reopening
March 23, 2023 | FIRESIDE CHARTS
The Federal Reserve tightening monetary policy always break something but once something breaks it usually marks the end of the tightening cycle. Issues within the banking sector are likely to lead to less credit availability which has historically hurt economic growth and employment. Less demand for labor will bring the labor market back into balance, lowering wage growth. Taken all together, this creates a more uncertain environment for the Federal Reserve. Inflation expectations continue to fall. Money markets take in massive inflows. China is reopening.
1. An inverted yield curve is difficult to deal with when your business model is to borrow short-term and lend long-term:
Source: BofA Global Research
2. Estimates place the tightening of market based financial conditions as equivalent to an additional 0.25% – 1.00% of additional rate hikes:
Source: Deutsche Bank Research
3. Companies that are reliant on bank financing may need to scale back their operations:
Source: BofA Global Research
4. The spread between wage growth for job switchers and job stayers is falling, too high of a spread is indicative of an unhealthy and unbalanced labor market:
Source: @AtlantaFed
5. FOMC participants continue to recognize the high uncertainty of the current economic environment but now more participants believe the risks to future inflation are balanced between the upside and the downside:
6. Consumer expectations are likely heavily influenced by falling gas prices:
Source: Daily Shot 3/20/2023
7. Banking issues aside, the spread between interest paid on deposits and money markets can be as high as 4%:
Source: Deutsche Bank Research
8. China’s reopening is no longer front-page news but we’re beginning to see it show up in the economic data:
Source: Pantheon Macroeconomics
Disclosure: The charts and infographics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are they a recommendation to take any action. Individual securities mentioned may be held in client accounts. Past performance is no guarantee of future results.