Market 01/03: Hawkish tone from FOMC Meeting Minutes

Hawkish tone from December 2023 FOMC Minutes and Fed officials' statements

Key updates from FOMC Minutes for December meeting:

Members assessed: Progress in disinflation uneven across inflation components— core services inflation remains high.

Fed may have to choose between dual mandate in the upcoming period: price stability vs growth

Fed members uncertain about the time needed to keep rates at peak and slowing QT process:

Need more data to assess regarding the time to maintain peak rates.

Some members emphasized analyzing “technical factors” (technical factors) is necessary before deciding to slow QT process.
Most members affirmed maintaining tight policy until inflation clearly and sustainably declines.

Most FOMC members believe that cutting rates at the end of 2024 is appropriate:

… keeping policy rates at current levels longer...

However, FOMC members also noted uncertainty in related forecasts…

Original FOMC meeting minutes here.

Remarks by Richmond Fed President Thomas Barkin:

+ Fed still able to tighten rates further.

+ US economy more likely to soft land but uncertain.

Market reduces forecast for Fed rate cut (-25bps or -50bps) in March 2024 from 80% to 74%:

Bond yields today rose back to ~4%…

as investors become disappointed that Fed may not cut rates as deeply next year as expected.

Followed by USD Index ($DXY) surging - largest gain since March.

Labor market starting to loosen: job openings decline

Job openings (number of job postings) per November JOLTs report is 8.79 million, lower than 8.85 million expected.

Largest changes in job openings by sector respectively are:

Transportation, warehousing, and utilities sector: -128,000
Federal government: -58,000
Wholesale trade sector: +63,000

Although loosened a bit, the labor market remains tight:

Job openings still exceed +2.499 million compared to the number of unemployed…
- … higher than the previous month's figure of 2.346 million (which was the lowest since July 2021).
- The reason is that the number of unemployed workers in November dropped sharply (6.291 million) compared to October (6.506 million).

However, supply-demand in the labor market is being rebalanced as:

—> supply side (workers) are more actively working (quits decreasing):

Number of quits — an indicator showing the strength of the labor supply side, decreased -157,000 to 3.471 million — a level equivalent to right before the pandemic in February 2020.

—> labor demand side is less tight, especially in some professional and white-collar jobs:

Hiring rate 3.5% , the lowest since March 2020 - and much lower than expected.

Of which, the number of newly hired employees in professional and business fields decreased sharply -363,000 - the largest drop since July 2020!

US public debt hits record level 34 trillion USD

According to the latest Treasury Department report released, total US public debt as of the end of 2023 is over 34 trillion USD:

The current debt is nearly 3.5 times higher compared to January 2009, when total US debt was only 10.6 trillion USD.

US debt increased (chart 2 below):

1 trillion USD in the past 3 months
2 trillion USD in the past 6 months
4 trillion USD in the past 2 years
11 trillion USD in the past 4 years

… correspondingly, the public budget deficit has also increased… much of which is interest payments (chart 1 below):

Interest payment costs on loans now reach over 1.05 trillion USD/year:

The US budget deficit is consuming all of GDP growth, i.e., in Q3:

when US GDP grew +4.9% yoy ~ increased +547 billion USD in nominal terms,
the US budget deficit reached a huge figure of -622 billion USD.

Manufacturing PMI remains in contraction for the 14th consecutive month

December manufacturing PMI rose to 47.4 from previous 46.7 (and better than 47.1 expected) but still below 50.

Weakening demand shown through:

New orders index decreased from November (dark red line)

New export orders index basically unchanged

Backlog orders index rose back above 40 but still contracting.

Other news

China's central bank is expanding its balance sheet to the highest level in over a decade — by injecting liquidity into the market to stimulate the stagnating economy.

Average wages of Chinese workers witness the sharpest drop in history

$TLT and $SPY both fell more than 0.5% on 01/02 — worst start since 2002

Matrixport's latest report offers a rare view that SEC may reject all spot Bitcoin ETF funds in January.
- Matrixport experts also predict Bitcoin could drop to 36,000 USD to 38,000 USD