The Market Isn’t Worried About Fed Independence https://t.co/v2f7BJ6GSO ...

Group 1 - The US labor market is showing signs of weakness, which is expected to lead to a Federal Reserve rate cut in the near future [1][2] - Inflation is anticipated to remain stubborn, complicating the Fed's decision-making process and impacting financial markets [3] - US Treasuries are projected to have their best year in five years, although the back end of the yield curve is trading higher due to inflation concerns [3][4] Group 2 - There are growing concerns about the independence and credibility of the Federal Reserve, particularly with potential political influences affecting monetary policy [5][6] - The bond market has reacted negatively to increased speculation about the next Fed chair, indicating investor apprehension regarding Fed independence [6][7] - The credibility of the new Fed chair, particularly if Kevin Hassett is appointed, is questioned, as it may affect consensus within the committee [7][8]

Currency Market Overview - The dollar index fell to a 2-week low, finishing down by -0.05%, influenced by the strength of the yen and expectations of a Fed rate cut [1] - The US Nov ISM manufacturing index unexpectedly dropped to a 4-month low of 48.2, below expectations of 49.0, indicating economic weakness [3] - The swaps market indicates a 96% chance of a 25 basis point rate cut at the upcoming FOMC meeting on December 9-10 [3] Eurozone Insights - The EUR/USD pair rose to a 2-week high, up by +0.09%, supported by a weaker dollar and hawkish comments from ECB officials [4] - The Eurozone Nov S&P manufacturing PMI was revised downward to 49.6, marking the steepest contraction pace in 5 months [5] Federal Reserve Speculation - Kevin Hassett is a leading candidate to succeed Jerome Powell as Fed Chair, which could be bearish for the dollar due to his dovish stance and support for President Trump's interest rate policies [2]

Core Viewpoint - The article discusses the impact of rising Japanese Government Bond (JGB) yields on global markets, particularly in relation to U.S. Treasury yields and potential Federal Reserve actions. Group 1: Japanese Market Developments - JGB yields are at a decade high for 10-year bonds and a 17-year high for 2-year bonds, indicating a shift in market expectations towards a potential rate hike by the Bank of Japan (BOJ) in December [4][5]. - The increase in JGB yields is contributing to a rise in U.S. Treasury yields, reflecting a global market interconnectedness [3][5]. Group 2: U.S. Market Reactions - The U.S. market is experiencing a "risk-off" day, with Treasury yields moving up as a reaction to developments in Japan [5]. - There is speculation regarding the potential appointment of Kevin Hasset as the new Fed chair, which could influence market perceptions of Fed independence and lead to higher long-term yields [8][9]. Group 3: Interest Rate Expectations - The market is currently pricing in an over 80% chance of a rate cut by the Fed, but there are concerns that a new Fed chair aligned with the White House could create uncertainty, potentially leading to higher long-term yields [10][16]. - The 10-year Treasury yield is expected to remain rangebound, with a possible floor at 3.75% unless there is significant weakening in the labor market or higher expectations for rate cuts [15][16]. Group 4: Psychological Levels in the Market - The 4% level for the 10-year Treasury yield is identified as a psychological barrier, with the market struggling to maintain levels below this threshold [12][14].

Economic Indicators - The dollar index (DXY) decreased by -0.08% after reaching a 17-month low in the November MNI Chicago PMI, indicating weaker economic activity [1] - US weekly initial unemployment claims fell by -6,000 to a 7-month low of 216,000, suggesting a stronger labor market than anticipated [3] - September capital goods new orders, excluding defense and aircraft, increased by +0.9% month-over-month, surpassing expectations of +0.3% [3] - The November MNI Chicago PMI dropped by -7.5 to 36.3, marking the steepest contraction in 17 months and falling short of expectations of 43.6 [3] Federal Reserve Outlook - The Fed Beige Book presented mixed signals, with some contacts expressing concerns about slower activity while others showed optimism among manufacturers [4] - Markets are pricing in an 80% probability of a 25 basis point cut in the fed funds target range at the upcoming FOMC meeting on December 9-10 [4] Eurozone Developments - The EUR/USD pair rose to a 1-week high, increasing by +0.23%, driven by comments from ECB Governing Council member Boris Vujcic regarding balanced risks to economic growth and inflation [5] - Uncertainty surrounding the Russian-Ukrainian peace plan is limiting euro gains, as European Commission Vice President Kallas indicated a lack of signs from Russia indicating a desire for peace [6] - Swaps are pricing in a 1% chance of a 25 basis point rate cut by the ECB at the December 18 policy meeting [6] Potential Leadership Changes - The dollar is under pressure due to reports that Kevin Hassett is a leading candidate to replace Jerome Powell as US Fed Chair, with his dovish stance potentially being bearish for the dollar [2]

Core Points - President Donald Trump is pressuring the Federal Reserve to lower interest rates, threatening to fire Fed Chair Jerome Powell and Treasury Secretary Scott Bessent if they do not act quickly [2][6] - Trump's criticism of the Fed's current interest rate policy reflects his desire to stimulate the economy by reducing borrowing costs and the interest on national debt [3][4] - The Federal Reserve's independence is at risk if Trump follows through on his threats, which could lead to significant implications for financial markets and the economy [3][7] Economic Implications - Trump argues that lower interest rates would help reduce mortgage rates and boost economic activity, although some experts are skeptical about the effectiveness of such cuts [4][6] - The Fed has maintained a flat rate throughout the year, only recently cutting it by 0.25 percentage points in its last two meetings [3] - There is a division among Fed officials regarding further rate cuts, with some concerned about inflation driven by Trump's tariffs [4][8] Federal Reserve Independence - The Federal Reserve was established as an independent entity to resist political pressures that could lead to unnecessary rate cuts, which might provide short-term economic boosts but could also trigger inflation [8] - Powell's term as Fed Chair is set to end in May, and he does not report to Trump or Bessent, highlighting the central bank's autonomy [5][6]

Core Viewpoint - JPMorgan highlights that the U.S. faces a significant challenge with its $38.15 trillion national debt and a debt-to-GDP ratio of approximately 120%, suggesting that the real risk lies in a gradual policy shift rather than an immediate crisis in U.S. Treasury buyers [1][2] Group 1: Debt and Economic Context - The debt-to-GDP ratio indicates that the U.S. owes considerably more than it produces annually, raising concerns about the government's ability to manage and refinance this debt without alarming investors [2] - The potential solutions to reduce the debt-to-GDP ratio are limited, as political challenges hinder cuts to Social Security and Medicare, and the current tax revenue is low compared to OECD standards [2] Group 2: Financial Repression Strategy - JPMorgan proposes a strategy of financial repression, where policymakers may accept higher nominal growth and inflation while maintaining low real interest rates, allowing the real value of debt to decrease over time [3][6] - This approach would require a compromise on Federal Reserve independence, as it would necessitate prioritizing debt sustainability over strict price stability [6] Group 3: Market Implications - The current market environment is already tense, with global crypto markets valued around $3 trillion experiencing significant downturns, affecting various risk assets [7] - Recent market activity has seen approximately 159,562 traders liquidated, totaling around $842.60 million in liquidations, indicating a broader risk-off sentiment [7]

Core Viewpoint - Federal Reserve Governor Lisa Cook is involved in an ongoing legal battle regarding her position on the Federal Reserve Board, following President Trump's announcement of her dismissal, which she contests as unlawful and detrimental to the Fed's independence [6][8]. Group 1: Legal Context - Cook has publicly acknowledged her ongoing legal case and expressed gratitude for the support she has received from colleagues [2]. - Her lawsuit, filed against Trump, the Federal Reserve Board, and Chairman Jerome Powell, argues that her dismissal undermines the independence of the Federal Reserve [6][8]. - The Supreme Court is set to decide on the case in January [11]. Group 2: Professional Commitment - Cook described her role on the Federal Reserve Board as "the honor of my life" and affirmed her commitment to fulfilling her duties on behalf of the American people [5]. - She emphasized that her legal team has addressed the implications of the case in court filings, and she refrained from further comments due to the ongoing nature of the case [5]. Group 3: Historical Significance - Cook's appointment marked a historic milestone as she became the first Black woman to serve as a governor on the Federal Reserve Board, and her potential removal could represent another significant event in this context [9]. Group 4: Support from Economists - Nearly 600 economists have expressed their support for Lisa Cook and the independence of the Federal Reserve in an open letter [3].

Group 1 - The Bank of England (BoE) warns that global financial markets could face significant downturns if investor sentiment regarding artificial intelligence (AI) or the independence of the U.S. Federal Reserve deteriorates [1][2] - The BoE's Financial Policy Committee (FPC) highlights an increased risk of a sharp market correction, particularly due to potential AI-related market declines, which could have material spillover effects on the British financial system [2][3] - Concerns are raised about the potential loss of Federal Reserve independence, which could lead to a sudden change in perceptions of its credibility, resulting in increased volatility and risk premiums in U.S. dollar assets [3] Group 2 - British government borrowing costs are closely linked to U.S. Treasury yields, indicating that a decline in U.S. bond prices could raise the cost of servicing new British public debt [4] - The BoE notes that the increase in borrowing costs reflects challenges in managing high debt levels across advanced economies, exacerbated by political uncertainties in France and Japan [5] Group 3 - The BoE points out that 30% of the U.S. S&P 500's valuation is concentrated in the five largest companies, marking the highest concentration in 50 years, with significant investments in AI from companies like Nvidia, Microsoft, Apple, Google-parent Alphabet, Amazon, and Facebook-parent Meta [6] - Current share valuations based on past earnings are reported to be the most stretched since the dotcom bubble, although they appear less stretched when considering future profit expectations [6][7] - The increasing concentration within market indices makes markets particularly vulnerable if expectations regarding AI's impact become less optimistic [7]

want to get his take on the markets, treasuries, the economy amid this government shutdown. I want to bring in Drew Mattis. He's the chief market strategist at Metife Investment Management.Uh we keep uh we keep moving higher. Are we moving too high or you know, you can only get higher if you go higher. So where are we.>> Well, I think that's a great point. When you compare what earnings expectations are and you compare it to growth expectations among economists, you know, there's a gap there. uh and if you' ...