Morning Report: Fed Week

Vital Statistics:

S&P futures4,051-33.00
Oil (WTI)79.39-0.27
10 year government bond yield 3.56%
30 year fixed rate mortgage 6.15%

Stocks are lower this morning as earnings continue to come in. Bonds and MBS are up.

The week ahead will be dominated by the Fed meeting on Tuesday and Wednesday. The Fed Funds futures are pretty much a lock for 25 basis points hike. We won’t get any new dot plots or forecasts.

In terms of economic data, we will get some housing price data with FHFA and Case-Shiller, ISM data and the jobs report on Friday. We will get earnings from Google, Facebook, Amazon, and a slew of other major companies.

Investors are going to want to see evidence that the Fed thinks it is getting some traction on inflation. Since monetary policy acts with a lag, by the time the data suggest that inflation is over the Fed is at risk of overshooting. That is certainly the fear right now, although the labor market does remain robust. The supply chain issues that drove up costs early in the pandemic have worked themselves out, and housing will disappear as a driver by this summer. A lot will continue to hinge on wage growth.

The Atlanta Fed’s GDP Now estimate for Q1 is a mere 0.7%. Note that the GDP Now estimate was significantly higher than the first estimate for Q4 GDP growth – about 60 basis points too high.

Jeffrey M. Lacker and Charles I. Plosser penned an op-ed in the Wall Street Journal about Fed policy and inflation. They discuss the use of rules like the Taylor Rule which calculate a Fed Funds target rate. Based on the inflation numbers we saw in December, these rules suggest the Fed Funds rate should be 8%. From the oped:

“While inflation readings have fallen in recent months, substantial upward pressures remain, particularly in wage-setting and service-sector prices. These present sizable upside risks, as do rates that remain below the prescriptions of historically grounded rules. If inflation persists at its current four-quarter rate of 5.5%, policy-rule recommendations for the funds rate range from 6.5% to 8% by the end of the year, substantially above what the Fed and markets are currently expecting.”

Interest rates could go much higher than the public realizes. Helping people understand the policy rules and how they inform the Fed’s thinking would be far more constructive than asking the public to decode ambiguous phrases such as “sufficiently restrictive.” Using the prescriptions of systematic policy rules would also bolster the Fed’s credibility by providing well-grounded benchmarks for how policy ought to respond to incoming data, thereby dampening perceptions that Fed policy choices—such as when to stop raising rates or when to reverse course—might be arbitrary or responsive to political considerations.”

Redfin put out a piece on how the housing market is beginning to recover. Condos and luxury properties are unpopular, but smaller properties that are well-maintained in good school districts are moving quickly. “Buyers are out there, but they’re making low offers and asking for concessions. They don’t seem ultra committed to homes like they used to. If they write an offer and they don’t get exactly what they want, they’re happy walking away. I recently heard about one seller who offered to pay the first three months of a new owner’s mortgage payment. There’s still a lot of cautiousness on both sides of the deal.”

Interestingly many sellers are reluctant to list their property because they want to stick with their ultra-low mortgage rate. Redfin noted that many of these sellers are deciding to rent their property and move up into a bigger one.

The Biden Administration is planning on releasing a Tenant Bill Of Rights, which has been drafted by community organizers and pro-tenant lawyers. It will attempt to find a way to impose national rent control. Ultimately the problem is that housing is in a dire shortage, and these measures will do nothing to increase supply – if anything expropriation of property rights will cause investors to raise the required rate of return to take into account regulatory risk, which means new investment will get harder, not easier.

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14 Responses

  1. The implicit is made explicit:

    “Newsrooms that move beyond ‘objectivity’ can build trust
    By Leonard Downie Jr.
    January 30, 2023 at 7:15 a.m. EST

    More and more journalists of color and younger White reporters, including LGBTQ+ people, in increasingly diverse newsrooms believe that the concept of objectivity has prevented truly accurate reporting informed by their own backgrounds, experiences and points of view.

    “There is some confusion about the value of good reporting versus point of view,” said current Post executive editor Sally Buzbee, who noted that many journalists want to make a difference on such issues as climate change, immigration and education. “We stress the value of reporting,” she said, “what you are able to dig up — so you (the reader) can make up your own mind.”

    “The consensus among younger journalists is that we got it all wrong,” Emilio Garcia-Ruiz, editor in chief of the San Francisco Chronicle, told us. “Objectivity has got to go.””


    • Just a reversion to norm. For 99% of the time news reporting has existed, the bias of the reporters and periodical were explicit. The concept of ‘objectivity” is really a Marxist/Leninist corruption. I for one welcome the truth of bias rather than the lie of objectivity.


      • They aren’t actually admitting to bias though. That’s what Greenwald, et. al do.

        The MSM wants to have it both ways.


      • McWing:

        The concept of ‘objectivity” is really a Marxist/Leninist corruption.

        Can you explain?


        • Walter Lippman is considered one of the (if not the) founder(s) of modern objective journalism.

          Just looking at his background, it screams Socialism/collectivism. He worked for Woodrow Wilson, what more do you need? Lol!

          Also, here’s an interesting piece:

 The Career of Walter Lippmann%60s Progressivism, 1913-1914.pdf

          He had debates with John Dewey but I’ve always viewed them as opposite sides of the same coin.

          I suspect he mellowed somewhat in his older age but early on in his journalistic career it’s hard for me to argue that he wasn’t rabidly pro Soviet.


        • I don’t think it makes sense to conclude, simply because Lippman was a collectivist and he founded the notion of objective journalism, that objective journalism is therefore the result of collectivism. I am certainly open to the idea that it was, but I think you need more than just an association of each to Lippman.

          And one of the main reasons I am skeptical of your original assertion that it was a “Marxist corruption” is that, from what I can tell, Marxism is much more associated with relativism/subjectivism than with objectivism. It would seem odd for a Marxist to champion the idea that objective truth could be recognized and conveyed to an audience independent of one’s own subjective viewpoint, since Marx thought that “reality” was determined by each person’s class status. In fact, the modern movements such as the trans movement (“you are a woman if you say you are a woman”) and CRT (“black reality”), both of which appeal to the notion of an individual’s “reality” over an objective reality, are at their root marxist.


        • Point taken, I think Shipman’s background screams Marxism along with working for Wilson. To me, Marxism relies on the foundation that man, and all his activities can be perfected and that so called experts do the perfecting. The link to the study demonstrated Shipman’s belief in collectivsm and collectivization. To him and Marx there must be one central authority to determine all things, including what the narrative is as well as what is newsworthy and what is not. Though he debated Dewey they were really debating about how to get to man’s perfection, not the underlying freedom. I’ll also add in the Leninist element that he would support anything that advanced the collectivization process even if that meant shifting the narrative 180 degree’s and denying there every was a shift.

          It’s one of those things that I “perceive” from the concept of Objective Journalism, reinforced by how a salon raised young man in late 19th New York would be steeped in Collectivism from day one of their life.

          I’m guilty of making connections sans direct evidence and I will own that. Working for Wilson should lend some credence to Shipman’s overall desire though.


  2. This is a pretty good article.

    My admiration for Trump’s accomplishments is on record. In one article, I swept away all the standard criticism. Unlike Rupert Murdoch, I will vote for Trump if he is the Republican nominee. But my vote won’t make up for all the losses.

    It’s true that some polls have Trump beating Biden. We would be naïve to believe that the Dems will run Biden in 2024. They’ll find a better candidate.

    It’s time we acknowledge Trump’s contributions and then cut him loose. A loss in 2024 will undo all the good that the first 30 months of Trump’s presidency bequeathed us. That doesn’t need to happen. We can win — just not with Trump.


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