The U. S. Economy Has A New Sherriff
Top-Level TakeawaysIn June, financial markets responded favorably to expectations for a narrow range of interest rates, lower oil prices, and significant cap ex from technology firms. Like ‘Nuke’ LaLoosh in. . .
Top-Level TakeawaysIn June, financial markets responded favorably to expectations for a narrow range of interest rates, lower oil prices, and significant cap ex from technology firms. Like ‘Nuke’ LaLoosh in Bull Durham, Kevin Warsh, the new chair of the Federal Reserve, announced his presence with authority at the June 17 FOMC meeting. The bond market priced for a more hawkish/less dovish FOMC in the aftermath of the June meeting. We have cleared the midpoint for the year, and investors are contemplating what lies ahead in the second half. The Fed has a new chair with reform on his mind. In late June, the White House appeared to be highly motivated to put the Iran conflict to bed and keep energy prices down. The AI infrastructure buildout remains a dominant theme for the U. S. economy and financial markets alike, with massive debt raises and subsequent capital expenditures by hyperscalers. Unemployment remains low and inflation elevated. The latter unfortunately continues to weigh heavier on the bottom quintile of income earners, but the rest of consumers appear to be in good shape. The bond market is priced for one to two rate hikes in the next year and expected rate volatility is relatively low at this point. In other words, current market expectations suggest interest rates trading in a tighter range the next several months. This has been positive for credit markets in recent weeks, as evidenced by strong investor demand for new debt issuance and tighter spreads relative to Treasuries. Inlast month’s commentary, we discussed material reforms that Kevin Warsh, the new chair of the Federal Reserve, favored for the central bank — from balance sheet policy to external communication. The question was how quickly he would begin working on these initiatives. The answer is immediately. Warsh did not tiptoe into his first FOMC meeting as Fed chair. If our first look at the Warsh regime taught us anything, it was that he has no plans to be timid in his reform efforts. Starting with the official statement, the June 17 edition was considerably shorter at 114 words, less than half the word count of the prior statement. The biggest change was the removal of forward guidance in the statement, which was a predominant theme in the press conference that followed. When pressed for policy guidance or economic outlook by reporters, Warsh repeatedly pointed back to the official statement. Visit ALM Firstto read more about the latest economic data and overallmonthly market trends. Jason Haley, Chief Investment Officer, ALM FirstJason Haley joined ALM First in 2008 and is the firm’s chief investment officer. He heads ALM First’s Investment Management Group (IMG), which is responsible for leading the investment process and investment theme development. Haley also oversees all capital markets activities, including portfolio management, trading, market research and commentary, and execution of hedging and funding strategies for the firm’s depository clients. He holds an MBA with a concentration in finance and a BBA with a concentration in marketing, both from The University of Mississippi. Not an offer for investment advisory services. This content is provided for general educational information and market commentary purposes only. Any forward-looking statements reflect current expectations and are subject to risks and uncertainties.