FED: Boston's Collins: Limited Further Easing Possible By Year-End
Sep-30 14:27
Boston Fed President Collins (2025 FOMC Voter) says in a speech Tuesday (link) that "it may be appropriate to ease the policy rate a bit further this year – but the data will have to show that". This indicates that she may not be one of the 9 FOMC members at the median 3.6% dot seen in the latest SEP projections. Instead she may only see one further cut this year (there are two of 19 members in that camp). To take a literal interpretation, Collins says it may be appropriate to ease "a bit further" this year; having described the September 25bp cut as "a bit of easing", so it would stand to reason she is referring to 25bp moves in both instances.
- This would be 25bp more easing in 2025 than she saw as recently as July, when she said that one rate cut by year-end would likely be appropriate. Subsequently at Jackson Hole, she said “it is not a done deal in terms of what we do at the next meeting. But a range of possibilities is on the table and we are going to get more data between now and then."
- She supported the 25bp September cut because "in my view, a bit of easing was appropriate to address the recent shift in the balance of risks to our inflation and employment mandate. But I continue to see a modestly restrictive policy stance as appropriate, as monetary policymakers work to restore price stability while limiting the risks of further labor market weakening."
- Collins's "baseline outlook continues to be relatively benign. I anticipate hiring will pick up as firms adjust to the new tariff environment. And while inflation is likely to remain elevated into next year, I expect it to resume its gradual return to target over the medium term. This outlook is similar to the median forecast in the September Summary of Economic Projections (SEP)." Note that the latest PCE medians were: 3.0% 2025, 2.6% 2026, 2.1% 2027.
- But "in this highly uncertain environment, I do not rule out scenarios featuring higher and more persistent inflation, more adverse labor market developments – or both. Still, with less scope for inflationary pressures from the labor market, the upside inflation risks I was concerned about a few months ago are more limited."
- On the labor market she says "Anemic job gains amid solid economic growth are a somewhat puzzling combination." In Q&A she elaborates, saying "there's a lot of different indicators that I think make it quite clear that the labor market has softened... at the same time, there are a number of indicators that indicate what you might call a kind of curious type of balance" so assessing the incoming data will be key to "understand how labor supply and labor demand are evolving."
- She says in Q&A re inflation that "while I do expect tariffs to continue feeding through, I'm no longer expecting as large an impact as I had some months ago."
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RATINGS: S&P Upgrades Portugal To A+ From A
Aug-29 20:28
S&P has upgraded Portugal's long-term credit rating to A+ from A, with a stable outlook (had been positive).
- This is the 7th S&P upgrade for Portugal, from a low of BB in 2012-15. Only four ratings are higher (AA-, AA, AA+, AAA). This is the same rating as Slovakia, and just above Spain (A) per S&P.
- Per Bloomberg: "*S&PGR UPGRADES PORTUGAL TO 'A+' ON LOWER DEBT; OUTLOOK STABLE"
STIR: Still Eyeing September And December Cuts
Aug-29 20:16
With few market-moving data points this week, implied Fed rate cuts essentially held onto their post-Jackson Hole upward repricing, adding a couple of basis points of easing for good measure heading into the Labor day weekend.
- Indeed, the lack of movement is somewhat remarkable given this week's extraordinary "firing" of Fed Governor Cook, which is currently being fought out in the courts. In all it probably added to the dovish tone on the near-term rate outlook post-Jackson Hole but not substantially so, at least so far.
- The current path sees a September rate cut priced with nearly 90% implied probability, with 56bp of cuts through end-year (a cumulatively priced second cut in December) and 83bp through March 2026 (3+ cuts).
MACRO ANALYSIS: MNI US Macro Weekly: One Week, Two Labor Days
Aug-29 20:10
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- A busy pre-holiday week for data brought mixed economic signals and little net change in Fed easing expectations, putting next week’s labor day – Friday with its nonfarm payrolls report, of course, with apologies to Monday’s federal holiday – in focus for the FOMC and market participants alike.
- Second-quarter GDP was revised up by more than expected in the second reading, to 3.3% Q/Q SAAR, driven by better-than-previously estimated domestic demand but still leaving 1st half growth in slightly weaker territory vs last year. That said, the Atlanta Fed's Q3 GDPNow estimate jumped to 3.47% (though the implied contribution from net exports in the quarter looks somewhat dubious, as we explain).
- The other major release of the week was July's Personal Income and Outlays report, which showed a modest uptick in income and spending on the month. However, the broader trends remain mixed at best, as real disposable income growth remains soft and services consumption is failing to regain traction.
- Core PCE inflation was close to expectations in July as the Y/Y accelerated to 2.9% for its fastest since February as it moves further away from recent lows of 2.6% having stalled above the 2% target. Recent trend rates are a little hotter but the median FOMC member will still need to see a further acceleration to meet their 4Q25 forecasts from June.
- Labor data were mixed. Latest jobless claims were in line to slightly better than expected, with initial claims trending a little higher but still impressively low whilst continuing claims are broadly plateauing after sharper increases in 1H25. But within the Conference Board consumer survey, the labor differential edged lower again, suggesting a continued upward trend in the unemployment rate.
- Elsewhere: regional Fed activity surveys were individually mixed, but combined generally showed an improvement in both manufacturing and services activity albeit with continued upside price pressures.
- Consumer sentiment (UMichigan and Conference Board surveys) and housing activity remained soft.
- Apart from Gov Waller again making the case from rate cuts, other FOMC colleagues who commented this week were a little more guarded when it came to the need for easing, to our ear.
