Contributor: Stephen J. Douglass
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A Potential New Tool in the LDI Toolkit
The CME Group launched a new product earlier this month — a 20-year Treasury futures contract. This follows the Treasury Department’s recent introduction of a 20-year bond, which has not gone as well as they had hoped. Once this long-duration Treasury derivative develops sufficient liquidity, it should provide liability-driven investors another tool to enhance the…
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Goods Prices Rise…For the First Time in 20 Years
Inflation has been a popular topic in recent client conversations, with good reason. Consumer prices are rising at the fastest pace since the early 1980s, raising questions about the path of monetary policy and the low-rate underpinnings of lofty risk asset valuations. As we first discussed last year, the pandemic recession uniquely targeted the services…
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Constraints on Labor Supply Should Prove Temporary
Total nonfarm employment in the US remains 8.2 million workers below the pre-pandemic peak reached in February 2020 and yet pockets of labor market tightening are already appearing. As is the case with other resources in the economy, both the supply of and the demand for labor have been extremely volatile throughout the pandemic. In…
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Phantom Jobless Claims Mask the Labor Market Recovery
We’ve written ad nauseum in these pages about the distorted and misleading economic data that have been produced during the unprecedented economic volatility of the pandemic. Despite turning a skeptical eye on hundreds of data releases over the past twelve months, we continue to find novel ways in which the data are inaccurate, often in…
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Tantrum Without the Taper: FAQ on Recent Market Volatility
The recent volatility in bond markets has prompted quite a few inquiries from clients. Here we consolidate our thoughts on the most frequently asked questions. What exactly happened in the Treasury market last month? Treasury yields have been rising steadily since last summer but an important shift occurred in mid-February. Between August 1 and February…
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A Conversation About the October Payrolls Report
Overheard on the NISA trading floor, Friday, November 6, 2020. Jess Yawitz: “Another strong payrolls report this morning, eh?” Stephen Douglass: “Yep, the jobs recovery continues to surprise to the upside. The details were even better than the headline figure too.” JY: “How so?” SD: “Well the headline figure showed a 638,000 gain in nonfarm…
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Making Up Is Hard To Do: The Fed Adopts An Average Inflation Target Part II
In a post earlier this week, we explained how the Fed’s new flexible average inflation targeting (AIT) framework is motivated by a desire to prevent the zero lower bound constraint from de-anchoring inflation expectations to the downside. The logic of the new framework is intuitive. If the zero lower bound prevents the Fed from providing…
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Making Up Is Hard To Do: The Fed Adopts An Average Inflation Target
In a landmark speech at the Jackson Hole conference in late August, Chairman Powell announced the first significant revision to the Fed’s operating framework since 2012. While the transition from a flexible inflation target to a flexible average inflation target might seem to be a subtle one, that may not move asset prices immediately, it…
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Initial Jobless Claims Only Tell Half the Story, and it’s Not the Good Half
Regular readers will know we’ve been on somewhat of a campaign against economic disinformation this year, describing how data errors and faulty seasonal adjustments have been sending misleading signals about the true state of the labor market. Alas, we are called into action yet again. Every Thursday brings the release of jobless claims data. Like…
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Service Required: The Unique Structural Impact of the 2020 Recession
The pandemic caused a recession unlike any other in American history. We’ve previously discussed the unprecedented speed of the shock itself and the policy response. The 2020 recession is also unique in the degree to which it has impacted service sectors of the economy. Financial economists are trained to closely monitor manufacturing and goods consumption…