PrefBlog

The subpoenas served on Powell have been quashed:

A federal judge has quashed subpoenas the Justice Department had issued against Federal Reserve Chair Jerome Powell, according to court documents unsealed Friday.

The ruling is a major blow to President Donald Trump, who has repeatedly criticized Powell for not lowering interest rates and urged the Justice Department to investigate the outgoing chair.

US District Judge James “Jeb” Boasberg wrote in the new opinion that a “mountain of evidence suggests that the Government served these subpoenas on the Board to pressure its Chair into voting for lower interest rates or resigning.”

“On the other side of the scale, the Government has produced essentially zero evidence to suspect Chair Powell of a crime; indeed, its justifications are so thin and unsubstantiated that the Court can only conclude that they are pretextual,” Boasberg said.
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Powell had stayed mostly mum in the face of Trump’s attacks, but just a few days after he was served with a subpoena in early January, the Fed chief released a remarkable video calling out the investigation as an affront to the Fed’s independence.

Powell’s response was discussed 2026-1-12 and the international response on 2026-1-13.

Meanwhile, the US 25Q4 GDP was pretty awful:

The U.S. economy, hobbled by last fall’s 43-day government shutdown, advanced at an unexpectedly sluggish 0.7-per-cent annual rate from October through December, the Commerce Department reported Friday in a big downgrade of its initial estimate.

Growth in gross domestic product – the nation’s output of goods and services – was down sharply from 4.4 per cent in last year’s third quarter and 3.8 per cent in the second. And the fourth-quarter number was half the government’s first estimate of 1.4 per cent; economists had expected the revision to go the other way – and show stronger growth.

Federal government spending and investment, clobbered by the shutdown, plunged at a 16.7-per-cent rate, hacking 1.16 percentage points off fourth-quarter growth.

For all of 2025, GDP grew 2.1 per cent, solid but down from an initial estimate of 2.2 per cent and from 2.8 per cent in 2024 and 2.9 per cent 2023.

In the fourth quarter, consumer spending grew at a 2-per-cent clip, down from 3.5 per cent in the third quarter and the 2.4 per cent the government had initially estimated. Business investment, excluding housing, increased at a healthy 2.2-per-cent pace, likely reflecting money being poured into artificial intelligence, but the increase was down from 3.2 per cent in the third quarter and from the 3.7-per-cent advance in the Commerce department’s initial estimate.

Exports fell at a 3.3-per-cent annual rate in the fourth quarter, a bigger drop than the government first estimated.

And the Canadian jobs number was horrendous:

Canada’s economy unexpectedly shed 83,900 jobs in February, driving the unemployment rate up to 6.7 per cent and showing the extent to which trade uncertainty is continuing to weigh heavily on the country’s labour market.

The rise in unemployment was fuelled by a significant drop in full-time jobs, which plunged by 108,000 last month, Statistics Canada said Friday in a report. The number of workers in the private sector fell by 73,000, while part-time employment held steady from January.

The largest decline in jobs was seen in wholesale and retail trade, which lost 18,000 jobs last month, a decline of 0.6 per cent. This sector has been struggling for months, shedding a cumulative 52,000 positions since October. Manufacturing and construction also took a hit, with a combined 21,200 jobs lost in those industries last month.

US inflation was basically steady:

The Consumer Price Index report showed that inflation steadied at 2.4 percent in February from the same time last year, matching January’s annual increase. On a monthly basis, overall prices ticked up 0.3 percent.

“Core” inflation, which excludes volatile food and energy prices, also budged little, registering a 2.5 percent year-over-year pace. Compared to the previous month, these prices were 0.2 percent higher.

February’s report, which was released by the Bureau of Labor Statistics on Wednesday, covers the period up until the United States and Israel first struck Iran on the final day of the month.
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In February, food prices were one of the biggest drivers of the overall increase, rising 0.4 percent over the course of the month, or 3.1 percent compared to the same time last year. Grocery prices, in particular, were up 2.4 percent, or 0.4 percent in February, while food away from home was 3.9 percent costlier on a year-over-year basis.
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Sectors most exposed to Mr. Trump’s tariffs, such as appliances, have continued to become costlier. Prices for those goods rose 3.1 percent in February and are up 2.9 percent from a year ago. Furniture prices were flat for the month, although compared to the same time last year, are 4.2 percent higher.

With that in mind, we may review yesterday’s Survey of Consumer Expectations:

February Survey: Labor Market Expectations Decline Slightly Overall,
Inflation Expectations Tick Down at Short-Term Horizon, and Delinquency Expectations Improve

• Median inflation expectations declined by 0.1 percentage point (ppt) at the one-year-ahead horizon to reach 3.0 percent in February while holding at 3.0 percent at the three- and five-year-ahead horizons.
• Median one-year-ahead earnings growth expectations decreased in February by 0.2 ppt to 2.5 percent, just below the trailing twelve-month average of 2.6 percent. The mean probability of leaving one’s job voluntarily, or the expected quit rate, in the next twelve months decreased by 2.8 ppts to 15.9 percent, a new series low.
• The mean perceived probability of finding a job in the next three months if one’s current job was lost decreased by 1.6 ppts to 44.0 percent. However, mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—decreased by 2 ppts to 39.9 percent.
• The average perceived probability of missing a minimum debt payment over the next three months decreased by 2.1 ppts to 11.6 percent, its lowest level since February 2024.

PerpetualDiscounts now yield 5.73%, equivalent to 7.45% interest at the standard conversion factor of 1.3x. Long corporates yielded 5.03% on 2026-3-11. Therefore the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed dramatically to 240bp from the 260bp reported March 4.

The BoC has released a new Staff Analyical Paper by Petr Kocourek and Adrian Walton titled Government of Canada Fixed-Income Market Ecology II: Government of Canada Bond Dealing:

This paper describes the organization of the market for trading Government of Canada (GoC) bonds. We outline the role of investment dealers in intermediating trading, distributing GoC securities and providing liquidity across the yield curve. We describe the key features of GoC bond trading and the financial market infrastructures that support it. We also review dealers’ risk-management and funding practices, with a focus on interest rate hedging and the use of benchmark bonds and related derivatives. The structure of the GoC bond market reflects both prudential and dealer-specific regulatory frameworks. As well, it reflects dealers’ ability to manage inventory, basis risk and short-term volatility—factors that shape trading costs and liquidity conditions in both benchmark and non-benchmark bonds.

There are some useful charts:

For those left wondering about how much all this liquidity is worth, I recommend my article Credit Spreads and Default Risk. This includes a chart from the BoE that is very illuminating.

This will be delayed a bit. Sorry!

Update, 2026-3-10:

Jobs, jobs, jobs!:

Employers cut 92,000 jobs in February, the Labor Department reported on Friday, and the unemployment rate rose to 4.4 percent. The job losses cut across nearly all major sectors, including health care, which was weighed down by a nurses strike in California.
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• Job concentration: Health care employment fell by 19,000 jobs in February, dragged down by a nurses strike in California that kept 31,000 people out of work. The health care industry has powered job growth, driven by the country’s aging population. But that dominance has raised concerns that the job market is more vulnerable than top-line numbers suggest.
• Wages solid: Wage growth remained healthy, at 3.8 percent over the year. Average hourly earnings have been slowing very gradually, but remain relatively steady, suggesting that hiring is not being constrained solely by the supply of available workers.
• Participation drops: The share of people in their prime years who were either working or looking for work fell slightly in February, to 83.9 percent.
• Low hire, low fire: Employers for months have been in something of a holding pattern. The number of job openings in December, the most recent month for which data is available, fell to its lowest level since September 2020. At the same time, initial claims for unemployment insurance have stayed low, indicating that employers overall are not laying off workers in large numbers despite some headline-grabbing jobs cuts at major companies.
• Labor supply: The Trump administration’s immigration crackdown has contributed to slower growth in the supply of labor. That has made it difficult to determine if a slowdown in job growth is caused by decreasing demand for workers, fewer available job-seekers or a combination of both.
• Fed implications: The report is certain to stoke divisions at the Federal Reserve, which holds its next meeting on March 17-18. Some officials appear highly concerned about the health of the labor market and willing to cut rates to support it, while others seem more focused on the risk posed by inflation, especially given the conflict in the Middle East.

The BoC is touting success in issuing a blockchain bond:

The Bank of Canada (BoC), RBC Capital Markets, RBC Investor Services, TD Bank Group (TD), and Export Development Canada (EDC) successfully completed Project Samara, a collaborative initiative to evaluate how tokenization and distributed ledger technology (DLT) can improve bond issuance and settlement in a real-world setting.

As a key milestone in the experiment, EDC issued this week Canada’s first tokenized bond using DLT, with payments settled in wholesale central bank deposits. The bond was sold and traded and will be managed throughout its life cycle on the Samara Platform.

The Samara Platform was designed for the experiment to support end-to-end transactions throughout the bond’s life cycle—including cash and bond issuance, bidding, coupon payment, redemption and secondary trading—on DLT infrastructure. Built on Hyperledger Fabric, the platform integrates separate bond and cash ledgers and enables the transaction to be settled instantly, as well as secondary market trading and settlement of the tokenized bond, directly on-chain.

Building on earlier experimental work from the series of Jasper projects, Samara tested the real-world feasibility and implications of a DLT-based platform for capital markets, using a real bond funded and traded with central bank money. The project was structured as a limited experiment, involving the issuance of a single security—a $100 million Canadian dollar–denominated bond of less than 3 months—to a closed investor group.

The experiment revealed both the potential and the limitations of DLT in a real-world financial setting:

• Efficiency gains: across participants, both operational efficiency and data integrity were improved, and workflows were streamlined
• Operational and governance complexity: efficiency gains were partially offset by system complexity, liquidity costs, the need for new governance structures, and increased attention in coordination, reporting and oversight
• Risk management: counterparty and settlement risk were reduced, but new operational risks related to technology, auditability and fallback mechanisms were introduced
• Regulatory and legal considerations: some centralized roles (such as a marketplace operator, custodian and off-platform trade reporting) highlighted gaps between the current regulatory framework and DLT principles
• Adoption barriers: despite technical feasibility, broader adoption will likely be slow due to several factors, such as integration challenges and limited appetite for core infrastructure changes.

Overall, Project Samara generated valuable insights into the practical application of DLT in capital markets. These insights provide a foundation for future work, and, while impacts in the short term are uncertain, the technology appears well-positioned to deliver efficiency and resilience benefits over the long term. Comprehensive findings of the project can be found in the Project Samara Research Paper.

The BoC has released a new Staff analytical paper by Bruno Feunou, Jean-Sébastien Fontaine, Rishi Vala titled Macro News in Market Moves: Classifying News through Asset Co-movements:

This paper introduces CLONE (Classification Of News), a method that decomposes asset price movements into four types of macroeconomic news—aggregate demand, productivity, inflation, and monetary policy—based on joint changes in prices of stocks, bonds, and inflation swaps. CLONE’s simplicity and forward-looking focus enable the identification of real-time economic signals that are critical for understanding market behavior and guiding policy decisions. We show that from 2004 to 2024 aggregate demand news historically dominated daily variation in asset prices, while inflation and monetary policy news have gained importance since 2021. We validate our method against sign-restricted VAR models and apply it to major U.S. macroeconomic data releases, providing insights into how market participants interpret and react to forward-looking information. We discuss several benefits of our approach relative to the standard sign restriction method.
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At its core, CLONE classifies each day based on the realized combination of daily price changes of U.S. stocks, bonds, and inflation swaps.2 These daily asset price changes capture forward-looking responses to “news” because asset prices reflect expectations (and uncertainties) about future payoffs sensitive to economic outcomes, and new information, or “news”, leads to revisions in those expectations. We interpret each realized combination of asset price changes as reflecting the dominant news affecting markets on that day. Under our framework, each day reflects either (1) news of future aggregate demand, (2) news of future inflation, (3) news of future productivity, or (4) news of future monetary policy.
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CLONE’s simplicity is also its key limitation. Since we identify each day with one news type, we ignore the possibility that certain days can signal more than one news type , and we can attribute noisy days with no news to a given news type. However, if news tends to disperse slowly over time, a bulk of the classification errors average out when we aggregate the daily identification to the monthly or quarterly frequency. In Section IV, we more formally discuss how our assignment of a single news type to each day can be interpreted as inferring the dominant source of news on that day, and how CLONE produces qualitatively similar conclusions as traditional SVARs.

We introduce CLONE, a simple and transparent decomposition of asset price movements. CLONE classifies the type of macroeconomic news revealed from stocks, bond yields, and inflation swap rates. The news components identified by CLONE exhibit persistent effects on asset prices, produce qualitatively similar conclusions to those obtained from sign-restricted SVARs, and align well with revisions in professional forecasters’ and businesses’ expectations of macroeconomic and financial variables in the direction we would expect.

We show that aggregate demand news accounts for the largest share of daily variation in the S&P 500, the 2-year U.S. Treasury yield, and the 2-year inflation swap rate over 2004–2024. More recently, between 2021 and 2024, the importance of inflation and monetary news increased markedly, reflecting a shift in the dominant drivers of asset price movements.

Finally, we examine the information content of FOMC announcements and major U.S. macroeconomic data releases. While FOMC communications are traditionally associated with monetary policy news, they have increasingly conveyed information about inflation in recent years. At the same time, we find that productivity-related news plays a central role in explaining stock market returns and movements in inflation swap rates, highlighting an additional and often underappreciated dimension of information revealed at policy and data announcements.

PerpetualDiscounts now yield 5.70%, equivalent to 7.41% interest at the standard conversion factor of 1.3x. Long corporates yielded 4.82% on 2026-3-4. Therefore the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed slightly (and perhaps spuriously) to 260bp from the 265bp reported February 25