FED: Gov Waller: Layoffs A Bigger Concern Than Inflation In Tariff Uncertainty
Apr-24 14:21
Fed Gov Waller on Bloomberg TV reinforces his credentials as one of the most dovish members on the FOMC, clearly emphasizing concerns over the growth impact of tariffs, vs what he sees as the likelihood that their inflation impact will only be a one-off. Previously he's said that he sees rate cuts either way, either in "good news/lower tariff" or "bad news/large tariff" scenarios, and his latest commentary reflects this though it's notable he doesn't think that the FOMC will have enough data to make a decision until later in the year though emphasizes that there are multiple downside signals that could warrant a cut before it is too "late".
- Waller says that in the "smaller tariff world" of 10-12%, most private firms can deal with it - however it would "not surprise me" to see layoffs tick up going forward if the "big tariffs come back up". Overall "every person I have talked to in the private sector" are "just kind of frozen", and "capex and everything has come to a stop".
- Asked when the Fed will have enough data to decide on rate cuts, Gov Waller says that we won't see the tariffs in the hard data "until July" - but "it is not likely to me that by July 1 you will see really big impacts from it" given the April 2 tariffs have been postponed. When you get to the 2nd half of the year we will have a better idea of tariff passthrough and "stuff on the real side". But in the interim there may be layoffs "at the same time when you see prices going up", you "could see both happen at the same time or close together".
- On unemployment, Waller says that he is more concerned about the speed at which it may rise: if the rate rises 0.1 points monthly, it would not be a "big problem", but if it rises 0.2pp or 0.3pp a month, "that is happening because you are seeing layoffs".
- Waller reiterates his view that tariffs are a "one time price level effect and it will pass through". As such he "will not overreact to any increase in inflation that is trivial", as "the critical thing is that it will take some courage to stare down the tariff increases" as "I have a hard time seeing" what would cause the tariff-driven inflation to persist. He notes that "if I see a significant drop in the labor market, I would expect more rate cuts and sooner."
- He says that due to a data-driven approach to policy, there is "always a risk" that the Fed will fall behind the curve, but "hopefully you are not late" - says if growth prospects "started tanking", "enough movement in the unemployment rate to make me think that things were going bad", or consumer spending started going down, "I would be ready to go and I would not be determining whether inflation was transitory or not" as it would be "time to worry about the real side of the economy."
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US DATA: New Home Sales Maintain Solid Pace As Inventories Pick Up
Mar-25 14:21
Sales of new single-family homes were a lower-than-expected 676k in February (680k survey, all figures are seasonally-adjusted and annualized), but this was more than compensated for by an upward revision to January (664k, +7k from prelim).
- This kept new home sales in roughly the same range they've been in since early 2023, which are roughly the same level as pre-pandemic - far outperforming existing home sales which remain around 20% below pre-pandemic levels.
- The current level of inventory however hit a post-2007 high of 500k, which at the current rate of sales equates to 8.9 months of supply - just below recent highs of just above 9.
- As such it suggests a relatively loose new home sales market vs early pandemic levels, and indeed the preceding decade. Though prices remain relatively elevated, at $414.5k median in February (-1.5% Y/Y)vs closer to $300k in late 2019, they're off the top ($460k in Oct 2022) and have basically moved sideways since early 2023.
- As today's final building permits (a leading indicator) showed, overall permits activity has softened a little since late 2024, but remains at a fairly normal level vs pre-pandemic. That's largely owing to continued single-family activity hovering near the 1m mark (of 1.459m overall), with multi-unit permits continuing to pull back.
- These are both mortgage rate related: high rates mean existing home sales are depressed and multi-unit (apartment) construction carries a higher cost of capital, whereas new home construction and sales have different dynamics (eg builder incentives). In short there is no change in the recent trend of unusually elevated new home sales vs existing, and there is unlikely to be until there is a major shift in the market, in particular higher unemployment and/or decisively lower mortgage rates.
US DATA: A Fourth Monthly Drop In Consumer Confidence But Jobs Metric Resilient
Mar-25 14:19
- Conference Board consumer confidence came in lower than expected in March at 92.9 (cons 94.0) with its decline from February boosted by an upward revision to 100.1 (initial 98.3).
- Having set a recent peak of 112.8 in November when Trump won the presidential election (highest since Jul 2023 and before that late 2021), confidence has since declined in each month with 92.9 marking its lowest since early 2021.
- The present situation fell from 138.1 to 134.5 whilst expectations drove the overall decline, falling from 74.8 to 65.2.
- Against that backdrop, it was impressive that the labor differential actually inched higher in March. The net share of those reporting jobs plentiful vs hard to get increased to 17.9 after an upward revised 17.6 (initial 17.1) in Feb.
- The latest change came as jobs plentiful was unchanged at 33.6% whilst jobs hard to get dipped to 15.7%.
- It doesn't materially alter the readthrough to the unemployment rate when allowing for a wide error range, suggesting some very mild upside bias remains.
PIPELINE: Corporate Bonds: $1.25B NWB 3Y SOFR Launch ,LG Energy Guidance Updated
Mar-25 14:15
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- 03/25 $4.65B Bausch Health 7NC3 10%a
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- 03/25 $1B #MuniFin WNG 5Y SOFR+46
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- 03/25 $Benchmark LG Energy 3Y +135, 5Y +145, 5Y SOFR+170, 10Y +170
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- 03/25 $Benchmark National Health Investors investor calls
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