Morning Report: Jerome Powell soothes the equity markets.

Vital Statistics:


Last Change
S&P futures 3002 6.5
Oil (WTI) 60.62 0.26
10 year government bond yield 2.08%
30 year fixed rate mortgage 4.08%


Stocks are higher this morning after Jerome Powell hinted strongly that the Fed would cut rates at the July meeting. The S&P 500 is at record levels and is flirting with the 3000 level. Bonds and MBS are down small.


Oil prices are rallying as tensions rise in the Strait of Hormuz. Iranian considers the Strait to be its territorial waters, and has been hassling warships going through the area for decades. The latest incident involves a British oil tanker. Persian Gulf tensions largely impact North Sea Brent prices more than West Texas Prices (which most of the US uses).


If the Fed is cutting rates, why aren’t yields going lower? Bond yields are higher across the board globally, with the German Bund yielding -26 basis points on hints that the ECB could launch further stimulus plans. The Bund yielded -38 bp last week, so perhaps US bond yields are simply following what international bonds are doing. Don’t forget, the last time the Fed Funds rate was in the 150 – 175 basis point range (May of 2018) the 10 year was about 2.9%. So, the Fed could cut rates 75 bp by the end of the year and we could see yields go nowhere. Look at the chart below, which plots the 10 year bond yield versus the Fed Funds rate:


10 year vs Fed Funds rate


Initial Jobless Claims came in at 209k last week, which was a touch below expectations. Regardless, the last time we were at similar levels was during the Vietnam War when we had a military draft.


Consumer prices rose 0.1% in June, according to the Consumer Price Index. The core CPI, which excludes food and energy rose 0.3%. On a YOY basis, the headline number rose 1.6% and the core index rose 2.1%. That said, the Fed prefers to use the PCE index, which shows inflation to be lower. The CPI overweights housing compared to the PCE, which is why it shows higher levels.


Jerome Powell’s Humphrey-Hawkins testimony dominated the headlines, but the FOMC minutes also confirmed his outlook.

Participants judged that uncertainties and downside risks surrounding the economic outlook had increased significantly over recent weeks. While they continued to view
a sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes, many participants attached significant odds to scenarios with less favorable outcomes. Moreover, nearly all participants in their submissions to the Summary of Economic Projections (SEP), had revised down their assessment of the appropriate path of the federal funds rate over the projection period that would be consistent with their modal economic outlook.


Separately, Larry Kudlow emphasized that Trump has no plans to fire Powell. The Fed’s independence from politics makes it highly unlikely he could do so in the first place, however Jimmy Carter did do it to G William Miller, kicking him upstairs to Treasury and hiring Paul Volcker to run the Fed.


The first hurricane of the 2019 Atlantic season looks like it will hit Louisiana.

23 Responses

  1. This is great. AOC basically calls Pelosi a racist.

    “Pelosi’s comments — combined with what she recently told New York Times columnist Maureen Dowd — only seem to have inflamed some of the most outspoken young women of color in her party. Rep. Alexandria Ocasio-Cortez (D-N.Y.) even seemed to suggest Pelosi’s comments might have a racial component.

    “When these comments first started, I kind of thought that she was keeping the progressive flank at more of an arm’s distance in order to protect more moderate members, which I understood,” Ocasio-Cortez told The Post. “But the persistent singling out . . . it got to a point where it was just outright disrespectful . . . the explicit singling out of newly elected women of color.” ”


    • If someone did that to Tip O’Nell back in the day, he would have moved their parking spot to Anacostia


    • Liked by 1 person

      • This is awesome:

        “The suggestion from the outspoken liberal freshman, made in a Washington Post article published Wednesday, stunned those Democrats, and it compounded their lingering anger after Ocasio-Cortez’s top aide publicly accused some colleagues last month of racist actions for supporting a compromise border spending bill.

        “What a weak argument, because you can’t get your way? And because you are getting pushback, you resort to use the race card? Unbelievable. Unbelievable to me,” Rep. William Lacy Clay (D-Mo.), a member of the Congressional Black Caucus, said of Ocasio-Cortez’s remark.

        Pelosi refused to respond directly to Ocasio-Cortez’s accusation at a Thursday news conference but said she had to speak out to defend her moderate members after the aide’s tweet.

        Saikat Chakrabarti, Ocasio-Cortez’s chief of staff, referred to members of moderate Democratic groups in a tweet last month as “New Southern Democrats” who are “hell bent to do to black and brown people today what the old Southern Democrats did in the 40s.”

        The aide later deleted the tweet but posted other tweets saying the moderates’ actions “still enable a racist system.””

        It’s very dangerous to believe your own bullshit.


    • I just don’t see how it’s beneficial to AOC to go to war with Pelosi, or how she can imagine it will be beneficial, unless she’s already mapping out her post-congressional career.

      I think AOC entitled-millenialism and the ego-distortion of having been elected to congress mostly by dumb luck (and, of course, the adoration of the media) has given her unrealistic beliefs about her own abilities.

      Even some people more sympathetic to her have to want to distance themselves, if they are hoping to move things through congress. Not everybody in the house who might like or at least tolerate AOC are going to want to join her in a jihad against the speaker of the house.


  2. Good piece on the potential changes to administrative law due to the recent SCOTUS decisions.

    “In the Census Case, Roberts Got Liberals to Help Undercut the Bureaucracy

    The Supreme Court rejected Trump’s citizenship question, but the ruling serves a conservative counterrevolution against the administrative state.

    John Yoo
    Law professor and deputy assistant attorney general in the Bush administration

    James Phillips
    Stanford’s Constitutional Law Center fellow”


  3. This made me laugh.


  4. I just don’t think that the Democrats have the leverage they think they have. Trump doesn’t care if the trade deal passes or not nor do I think Republicans care if there is more spending.

    That leaves the Democrats holding the. Ag if the debt ceiling doesn’t get raised.


    • I have tried to be calm about this, but you know, I’m getting sick and tired of seeing Pelosi get dumped on around here. I’m critical of her in some ways, too. But the implication that AOC is making is outrageous: the idea that Pelosi is using some sort of racial standard in judging her House members.

      I find the irony of Kossacks pointing out the cynical or unlikely accusation of racism is opportunistic and unfair very rich.

      Interesting how many of them are souring on AOC, or both.


    • I know it’s the Kos but: Yes, I know it looks like the mean man cheated his way into the presidency, and is credibly accused of being a rapist, and compliments rich child molesters, and tweets things that are openly racist and sexist and bigoted, and obstructs justice, and refuses to abide by Supreme Court decisions, and is putting policies in place to increase climate change that will probably destroy the planet in a few years, and is trying to take away basic health care from millions of people, and illegally locks innocent kids in cages without beds, blankets, or toothbrushes.

      This worldview is just amazing to me. Smart, can put sentences together, yet seems completely aware of basic facts in regards to issues they appear to be very concerned about. Just bewildering. It’s a funhouse mirror version of the world.

      That being said, I love the folks saying: “The Democrats need to stop infighting because the Right will lie about it and use it to win elections! Everybody needs to get along!” While frequently disagreeing about which side is to blame.

      But I feel like the Democrats are putting the schism betwwen NeverTrumpers and Trumpistas to shame. I mean, that’s nothing compared to what they are doing and saying on the Dem side now. Going into the election. Always the best time to do it.

      I don’t see how any Democrat but Biden has any chance of winning against Trump. Or winning against a tree stump, frankly, if that was the candidate the Republicans fielding. Their deep bench seems completely unelectable, all of them running a some platform based on destroying the lives of most Americans in order to benefit the virtue-signaling options available to rich urban-dwellers.


    • I can’t imagine why a politician would worry about being alone with a broad that’s not related.

      Liked by 1 person

      • I think the Post has a half-dozen columns about this already. struck a nerve, i guess.


        • It did. They can’t accept that a logical consequence of #metoo where it’s guilty until proven innocent and maximum consequences is that people might adopt an affirmative defense.

          The real example that people need to cite is that McCain was often alone with a female lobbyist and the New York Times used that to insinuate he was having an affair with her with no other evidence.

          Every male politician should have learned the lesson then, especially the Republican ones.


        • Exactly. And for married politicians, the “pledge between spouses” is a great response. They aren’t blaming #metoo, they are saying: this is what we pledged to each other when we got married, and that’s that. I stick to that. There’s no law against it. We don’t ever spend one-on-one time with a member of the opposite sex.

          They don’t like it and the tear out their hair and gnash their teeth and put on their hair shirts, but I don’t see them making any progress on preventing it or getting around it. For men, these women are asking them to break a commitment they made to their wives (as the argument is framed by the men; may not be true, exactly, but doesn’t matter)–no matter how much they couch it in terms of their job, the female demanding to be alone with the married man who said he didn’t want that is casting themselves in the role of of aggressor and homewrecker.

          Although if I were a politician, I’d always have a personal assistant recording my interactions with any reporter.

          And I don’t care who you are: you can’t frickin’ demand a ride-along with someone because you’re a reporter. I can’t demand you let me in your car because I’m a reporter and I want to ask you questions now.

          Journalists really see themselves as an elevated class with special privileges–and that being more important that other people is essentially their job, not, you know, reporting the news.


        • They can’t accept that a logical consequence of #metoo where it’s guilty until proven innocent and maximum consequences is that people might adopt an affirmative defense.

          Bingo. The law of unintended consequences rears its head once again.

          Liked by 1 person

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