FED: Bessent Eyes Fed Inflation Target Range, Eliminating Dot Plot (2/2)
Bessent suggested that one concrete Fed reform in future may be to eliminate some of the main published communications tools, while also eyeing up the rolse of the regional Feds (a key point made by ex-Fed Gov Warsh who is also a Fed Chair finalist):
- "I think many of [the candidates] have talked about getting rid of this so called Dot Plot, the Summary of Economic Projections. They've talked about...should each one of the regional banks have a specialty, go back to a center of excellence? Why do we have so many overlapping functions?"
- Bessent also opined on a potential future shift in the Fed's inflation target, going from a 2% target to a range that could be 1-3% or 1.5-2.5%:
- "We've chosen 2% and I think it's very difficult to do a mid-air refueling or to call an audible... when you're above 2, because then it looks like when you're above a level, you will always fudge upward....Once we are back to 2 which I think will be in sight, then we can have a discussion, is it much smarter to have a range? The economy, the markets are ...non linearities. They're very complex systems.... And this idea that we can have this decimal point certainty is just absurd. So I believe that once we re anchor to the target, then we could talk about a range, and we could decide whether the range is from 2.5 to 1.5, is it from 1 to 3? But I think it's very difficult to re anchor until you meet the target and maintain credibility."
- On that note, Bessent on the softer-than-expected but contentious October/November CPI data: "actually think it was a pretty accurate number...Look, the BLS is problematic. We've seen that the whole time. I have no reason to believe that this is any less robust than any other data series, and I would say with with rent, with energy, that those are very large components that have turned down substantially that actually recorded a gain for that measurement period."
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RATINGS: Moody's Upgrades Italy To Baa2 From Baa3, Still A Notch Below Others
The Moody's upgrade to Italy's credit rating announced late Friday was the first from the agency since 2002 but shouldn't be considered a major surprise. Among the 3 major ratings agencies, Moody's had the lowest rating on Italy - by two notches (Fitch and S&P both BBB+).
- So this upgrade to Baa2 from Baa3 represents something of a closing of that gap rather than a major breakthrough for Italy.
- From the release:
- "The rating upgrade reflects a consistent track-record of political and policy stability which enhances the effectiveness of economic and fiscal reforms and investment implemented under the National Recovery and Resilience Plan (NRRP). It also points to prospects of further policy actions supporting growth and fiscal consolidation beyond the plan's deadline in August 2026. As a result, we expect that Italy's high government debt burden will gradually decline from 2027 onwards."
FED: Heading Into Its Final Weeks, QT Pace Remains At $20B/Month (2/2)
On the asset side of the Fed balance sheet, we saw a $25B drop in assets, of which just $2B could be attributed to QT in one of its final weeks (ends Dec 1).
- Instead it was a $6B drop in dealer repo operations vs a week earlier, and $17B in "other" areas that aren't related directly to monetary policy and typically don't have any significant impact on the size of the balance sheet (such changes are largely due to items such as bank premises, accrued interest, and other accounts receivable.)
- Discount window takeup edged up $0.3B to $6.1B but remains relatively low.
- QT has totaled just under $21B over the last month, around the expected pace, though as noted this will flatline in December with a pickup in net bills as MBS proceeds are rolled over into T-bills.
LOOK AHEAD: US Week Ahead: Retail Sales, PPI & Claims Headline Thanksgiving Week
A Thanksgiving-condensed week sees data highlights from delayed retail sales and PPI reports for September on Tuesday (Nov 25) before a Wednesday release for weekly jobless claims (Nov 26). Aside, the Fed’s Beige Book should also offer another important update on Wednesday for latest liaison reporting, with no Fedspeak currently scheduled around the holiday and the FOMC media blackout due to start on Saturday, Nov 29.
- As we regularly comment in this weekly publication, Redbook and Chicago Fed CARTS indicators point to solid nominal growth in retail sales, something broadly reflected in analyst consensus for the release.
- PPI inflation will offer a useful albeit not overly timely update on input cost pressures.
- Jobless claims will be watched particularly closely, both for latest initial claims for signs of layoffs and a notable update for continuing claims. The latter covers the payrolls reference period for November and will be an important reference point for FOMC members trying to get a sense of latest unemployment rate clues with the next payrolls reports coming after the Dec 9-10 FOMC decision (going into it with this week’s 0.12bp rise to 4.44% back in September).
