Economic Agenda, Inflation, and Credit | Top Three Things to Watch this Week

Economic Agenda

"The key is to wait. Sometimes the hardest thing to do is to do nothing." - David Tepper Due to a holiday-shortened Thanksgiving week, I will keep this writing rather short and provide you with some of the dynamics underneath the economic hood. We will be back to full-length editions of this writing next Sunday. Equity markets have continued to charge north despite a strong Dollar and hawkish rhetoric from current and former members at the Fed. While former Fed Official Dudley and Lacker see the Fed Funds Rate peak at "probably 3% to 4%", James Bullard - a voting member in 2022,- argued for the Fed to "tack in a more hawkish direction". It doesn't catch us as a surprise, though. Why? Time and again, the Fed has signaled its willingness to stay behind the curve and act reactively - on a lag, - to incoming economic data. The Fed employs over 400 Ph.D economists, all of whom have laser eyes on the trajectory of the economy. Now more than ever is their mandate one that extends far beyond inflation targeting and maximum employment. In Anguish of Central Banking, Arthur Burns talks about the implications of social and fiscal phenomena on monetary policy. At the point where you give fiscal authorities room to spend, they will.

Inflation for Longer, Economic Growth Pushed Back?

We are set to see PCE, GDP, Michigan Sentiment, as well as Jobless Claims all hit the tape on Wednesday.

With more hawkish rhetoric from the Fed and rather dovish tone from the ECB, it ultimately becomes more expensive for EEM markets to borrow and put pressure on the income statements of U.S. internationals.

With FOMC minutes on Wednesday and ECB minutes on Thursday, attention will shift to currency markets -- is there a breaking point?

Euro hit by bets ECB monetary policy will diverge from major peers - FT

Source: Haver Analytics

Around the globe, inflation expectations have been on the rise while economic projections were revised downward. All of this is happening in an economy that's as interconnected as it's ever been, adding to the complexity of balancing monetary policy.

U.S. Economic Agenda

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Credit Impulse and Fiscal Drag

A weakened credit impulse is accompanied by a projected drain on the fiscal side. Are midterm elections in 2022 setting a different tone or have the country's expectations for providing a "safety net" to any drawdown of financial assets shifted?

Credit Impulse

As monetary policy makers are looking to wind down accommodation, is a shift to fiscal well underway?

Fiscal Drag

Food for Thought

US Corporate Bonds Issuance

Source: SIFMA

Fixed Income Outstanding

Source: SIFMA

Inter-firm Reallocation of Labor

Source: @EconBerger

"Do elevated quits/hires mean that inter-firm labor reallocation is increasing? We talk a lot about productivity gains from CAPEX, but workers moving from low-paying/productivity firms/industries to high-paying/productivity firms is also valuable!" - @EconBerger

Ratio of Tangible Capital to Total Assets at Large Banks

Source: Fed

Bank Lending Standards

Source: Fed

"While delinquencies have generally been flat, some uncertainty remains about whether the credit quality of bank loans will hold up after loss-mitigation programs end and government support runs out." - Federal Reserve

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