Upcoming Events
Monday, May 1
GDPNow Update
Tuesday, May 2
JOLTS Release
FOMC Meeting
Wednesday, May 3
FOMC Meeting and Press Conference
Thursday, May 4
GDPNow Update
Friday, May 5
Jobs Report Release
Cook Speaks at Michigan State University
Recent News
Buyer be where… Federal Deposit Insurance Corporation (FDIC) employees were burning the midnight oil on Sunday, reviewing bids for First Republic Bank. The FDIC hopes to resolve the failing bank before markets open on Monday. JPMorgan Chase, PNC Financial Services Group, and Citizens Financial Group were believed to have submitted bids.
Depositors abandoned First Republic en masse following the failures of Silvergate Bank, Silicon Valley Bank, and Signature Bank in March. In last week’s quarterly earnings release, First Republic indicated it had just $104.5 billion in deposits (including $30 billion from large U.S. banks, which aimed to prop it up), down from $176.4 billion at the end of the prior quarter.
First Republic' stock (NYSE:FRC) has declined 97 percent since the start of the year.
Take a hike… The Federal Open Market Committee (FOMC) is expected to raise its federal funds rate target by 25 basis points when it meets this week, the CME Group reports. The odds are currently at 84.9%, compared with 83.9% one week ago.
Market participants expect the FOMC will hold rates at the 5.00 to 5.25 percent range until September. They are currently pricing in a 56.6 percent chance that the federal funds rate will be at or below 5.0 percent then.
In March, the median FOMC member projected the federal funds rate would be 5.1 percent in December 2023. Markets currently put the odds of a 5.0 to 5.25 percent target range in December at just 3.7 percent.
Disinflation… The personal consumption expenditures price index (PCEPI) grew 4.2 percent from March 2022 to March 2023, down from 5.1 percent over the 12-month period ending February 2023. The annualized monthly rate was just 0.9 percent in March 2023, compared with 3.6 percent in February and 7.2 percent in January.
Core PCEPI, which excludes volatile food and energy prices and is thought to be a better predictor of future inflation, remains elevated. It grew 4.6 percent from March 2022 to March 2023, compared with 4.7 percent over the 12-month period ending February 2023. The annualized monthly core PCEPI inflation rate was 3.4 percent, down from 4.2 percent in February and 6.7 percent in January.
Prices today are much higher than they would have been had the Fed hit its 2-percent inflation target over the period beginning January 2020, just prior to the pandemic.
Money, money, money… The M2 monetary aggregate, which includes currency, checkable deposits, savings deposits, money market mutual fund balances, and small-denomination time deposits, declined for the eighth consecutive month. M2 peaked at $21.7 trillion in July 2022. In March 2023, it was just $20.8 trillion.
Slow growth… Real gross domestic product (GDP) grew at an annualized rate of 1.1 percent in Q1-2023, the latest data from the Bureau of Economic Analysis shows. It grew at 2.6 percent in Q4-2022. Real GDP recovered quickly following the contraction in early 2020, but has yet to return to the pre-pandemic growth path.
Aggregate demand… Nominal GDP grew 5.1 percent in Q1-2023, down from 6.6 percent in the prior period. Nominal GDP has exceeded its neutral level since Q1-2021. However, the nominal GDP gap declined from 5.9 percent in Q4-2022 to 5.8 percent in Q1-2023.
Excess nominal spending is the primary reason why prices have grown so rapidly since March 2021.