Category: Market Action

Canadian inflation wasn’t as bad as expected:

Canada’s inflation rate rose to 1.9 per cent in August, increasing by less than economists had forecasted and solidifying expectations of an interest rate cut on Wednesday.

Statistics Canada reported on Tuesday that the annual inflation rate rose from 1.7 per cent in July. The acceleration in headline inflation was driven by a smaller annual decrease gasoline prices in August relative to July.
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The Bank of Canada’s key measures of inflation continued to hover around three per cent last month. Meanwhile, inflation excluding gasoline prices rose by 2.4 per cent, down slightly from the previous three months.
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Food prices rose by 3.4 per cent, compared with 3.3 per cent in July. Shelter costs increased at a slower pace of 2.6 per cent, down from 3 per cent the previous month.

And the market reacted:

Credit market-based probabilities of a Bank of Canada rate cut on Wednesday rose following the release of Canadian inflation numbers this morning – which overall were modestly softer than expected.

Based on trading in overnight index swaps markets, traders now see about a 93% chance of a quarter point cut on Wednesday, up from about 87% prior to the inflation report, according to LSEG data.
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Here, in detail, is how implied probabilities of future interest rate moves stood in swaps markets after the inflation report. The current overnight rate is 2.75 per cent. While the bank moves in quarter-point increments, credit market implied rates fluctuate more fluidly and are constantly changing. Columns to the right are percentage probabilities of future rate moves.

Pre-Announcement

Post-Announcement

Erika McEntarfer, former commissioner at the Bureau of Labor Statistics, provided some commentary on her firing:

Her lecture at the Levy Economics Institute at Bard College, her alma mater, comes as questions swirl about the integrity of government data as Trump has sought greater control of the agency and tariffs appear to be hurting the economy.
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“Firing your chief statistician is a dangerous step,” she said. “That’s an attack on the independence of an institution arguably as important as the Federal Reserve for economic stability. It has serious economic consequences, but that they would do this with no warning — it made no sense.”

“Messing with economic data is like messing with the traffic lights and turning the sensors off. Cars don’t know where to go, traffic backs up at intersections,” she said, a nod to the concerns many economists have raised since her firing.

Before her firing, McEntarfer’s biggest concern with the monthly jobs reports and other economic reports the BLS publishes was funding shortfalls that made it harder to conduct surveys that inform the data, she said. That’s been especially true as response rates to the agency’s surveys have fallen. But that has not impacted the accuracy of the data, she said.

“But after the events of the last six weeks, I’m afraid we have to fear for the (data) dependence of the agencies themselves.”
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On Tuesday, McEntarfer said that late-responding firms were the principal reason for the negative revision that preceded her firing. That dynamic was explained by McEntarfer and her staff during their monthly pre-jobs report briefing to the White House.

She told White House economists that revisions as large as the May and June jobs data tend to occur “when the economy slows,” she said. During the briefing, White House officials asked her: Was the skew disproportionately among small firms, and when was the last time this happened?

“It was a pretty broad-based, negative skew,” she said, noting that the last time this happened was in the early months of the pandemic. Businesses were likely responding late to the survey “because they’re just too busy trying to stay alive.”

Quality costs money, Mr. Trump!

Lots of news on the Lisa Cook firing today! Apparently she told her Georgia mortgagor that it was a vacation home:

A loan estimate for an Atlanta home purchased by Lisa Cook, the Federal Reserve governor accused of mortgage fraud by the Trump administration, shows that Cook had declared the property as a “vacation home,” according to a document reviewed by Reuters.

The document, dated May 28, 2021, was issued to Cook by her credit union in the weeks before she completed the purchase and shows that she had told the lender that the Atlanta property wouldn’t be her primary residence. The document appears to counter other documentation that Cook’s critics have cited in support of their claims that she committed mortgage fraud by reporting two different homes as her primary residence, two independent real-estate experts said.
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Reuters was unable to determine whether Pulte or administration officials are aware of Cook’s Atlanta loan estimate. Spokespeople at the FHFA, the agency led by Pulte, didn’t respond to a request for comment.

The documents cited by Pulte include standardized federal mortgage paperwork which stipulates that each loan obtained by Cook for the Atlanta and Michigan properties is meant for a “primary residence.” But documentation reviewed by Reuters for the Atlanta home, filed with a court in Georgia’s Fulton County, clearly says the stipulation exists “unless Lender otherwise agrees in writing.” The loan estimate, a document prepared by the credit union, states “Property Use: Vacation Home.”
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In another point that could help Cook’s case, she never requested a tax exemption for the Georgia home as a primary residence, according to property records and a Fulton County tax official.

A separate document reviewed by Reuters, related to a federal form completed by Cook as she obtained security clearance for her role at the Federal Reserve, shows that in December 2021 she also declared the Atlanta property as a “2nd home.” Though unrelated to the mortgage, the declaration on that document, a supplement to a U.S. government national security form known as SF-86, is consistent with the claim on her Atlanta loan summary.

Well, of course Pulte and the rest of the Trump administration weren’t aware of the document. They just used their standard technique of taking things out of context and proceeding without the slightest attempt at due process … and by due process, I mean internal checking for flaws before racing off to court, not just the court action itself. The entire administration is chock-full of incompetent scum; we knew that already.

It didn’t stop them from solemnly presenting their case:

The Trump administration on Sunday renewed its request to a federal appeals court to fire Lisa Cook, a Federal Reserve governor who has faced political scrutiny in recent weeks.
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The Trump administration called Cook’s claims to stay on the board “meritless,” adding that concerns over whether Cook misrepresented her finances pose concerns as to “whether Cook can be trusted to act with forthrightness, care, and disinterest in managing the U.S. money supply.”

The next story is that she seems to have done everything right in Michigan, too:

The property tax authority in Ann Arbor, Mich., says Federal Reserve Governor Lisa Cook hasn’t broken rules for tax breaks on a home there that Cook declared her primary residence.

The finding, which came in response to a Reuters request that the city review Cook’s property records, could boost Cook’s defense against efforts by the Trump administration to remove her from the Federal Reserve board.

Ann Arbor has “no reason to believe” that Cook violated property tax rules, City Assessor Jerry Markey told Reuters. Cook has at times lived elsewhere and city records indicate she sought permission from Ann Arbor authorities to rent out the Michigan home on a short-term basis.
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Since securing a mortgage for the Michigan home in 2021, local property records show she got approval from the city to rent it out on a short-term basis in October, 2022, and again in April, 2024. Some cities, like Ann Arbor, require home owners to obtain a license to rent out their home, even on a short-term basis.

In April of 2025, months before Pulte began publicly accusing her of fraud, Cook sought approval to list the home as a long-term rental, according to local records and city officials. In July, she told the city she had enlisted a rental firm to manage the property, the officials said.

Cook now has until the end of the year to revoke the tax exemption on the home, said Markey, the Ann Arbor city assessor.
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The rates on Cook’s two mortgages show Cook didn’t enjoy discounts compared with prevailing rates available to borrowers when she negotiated the loans in 2021.

Her rate on the 15-year loan on the Michigan property was 2.875 per cent, versus a prevailing national rate in that period ranging from 2.23 per cent to 2.45 per cent, according to Freddie Mac data. And her rate on the 30-year loan on her Atlanta property was 3.25 per cent, versus a prevailing rate at the time ranging from 2.93 per cent to 3.04 per cent.

And so, not surprisingly:

President Donald Trump cannot remove Lisa Cook from the Federal Reserve’s Board of Governors for now, a federal appeals court said in an emergency ruling Monday, hours before the central bank’s two-day monetary policy meeting kicks off.
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“In this court, the government does not dispute that it failed to provide Cook even minimal process—that is, notice of the allegation against her and a meaningful opportunity to respond—before she was purportedly removed,” Judges Bradley Garcia and Michelle Childs wrote in their opinion.

“The district court issued its preliminary injunction after finding that Cook is likely to succeed on two of her claims: her substantive, statutory claim that she was removed without ‘cause’… and her procedural claim that she did not receive sufficient process prior to her removal in violation of the Due Process Clause of the Fifth Amendment,” Garcia and Childs wrote.

In his dissenting opinion, Judge Gregory Katsas wrote that “President Trump removed Cook for cause.”

But fear not, Trump fans! He managed to get his … stooge? muse? … confirmed as a Fed Governor:

Stephen Miran, one of President Donald Trump’s top economic advisers, on Monday was confirmed by the Senate to serve on the Federal Reserve’s powerful Board of Governors, hours before the Fed’s two day monetary policy meeting begins.

The Senate voted 48-47 to confirm Miran. Sen. Lisa Murkowski of Alaska was the only Republican to vote against Miran’s confirmation.

Once sworn in as a Fed governor, Miran will immediately be one of 12 officials voting on interest rate decisions.

TD Bank announced a new LRCN today:

The Toronto-Dominion Bank (“TD”) (TSX: TD) (NYSE: TD) today announced the pricing of a U.S. public offering of US$750 million 6.350% Fixed Rate Reset Limited Recourse Capital Notes, Series 6 (Non-Viability Contingent Capital (NVCC)) (the “LRCNs”). The LRCNs will be registered with the U.S. Securities and Exchange Commission (the “SEC”).

The LRCNs will bear interest at a rate of 6.350 per cent annually, payable quarterly, for the initial period ending on, but excluding, October 31, 2030. Thereafter, the interest rate on the LRCNs will reset every five years at a rate equal to the prevailing U.S. Treasury Rate plus 2.721 per cent. The LRCNs will mature on October 31, 2085. The expected closing date of the offering is September 23, 2025, subject to customary closing conditions.

Concurrently with the issuance of the LRCNs, TD will issue 750,000 Non-Cumulative 6.350% Fixed Rate Reset Preferred Shares, Series 33 (Non-Viability Contingent Capital (NVCC)) (“Preferred Shares Series 33”) to be held by Computershare Trust Company of Canada, as trustee for TD LRCN Limited Recourse Trust™ (the “Limited Recourse Trust”). In case of non-payment of interest on or principal of the LRCNs when due, the recourse of each LRCN holder will be limited to that holder’s proportionate share of the Limited Recourse Trust’s assets, which will consist of Preferred Shares Series 33 except in limited circumstances.

TD may redeem the LRCNs on October 31, 2030, and once every quarter-end thereafter, with the prior written approval of the Superintendent of Financial Institutions (Canada), in whole or in part on not less than 10 days’ and not more than 60 days’ prior notice to the LRCN holders.

I’m fascinated by the quarterly redemption option. How on earth do they get away with that? The Canadian ones don’t have that:

The Toronto-Dominion Bank (“TD”) (TSX: TD) (NYSE: TD) today announced the pricing of a Canadian public offering of C$750 million of 5.909% Non-Viability Contingent Capital (“NVCC”) Additional Tier 1 (“AT1”) Limited Recourse Capital Notes Series 5 (the “LRCNs”).
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With the prior written approval of the Superintendent of Financial Institutions (Canada), TD may redeem the LRCNs commencing on January 1, 2030, and every five years thereafter, during the period from and including January 1 to and including January 31. TD may redeem the LRCNs in whole or in part on not less than 10 days’ and not more than 60 days’ prior notice to the LRCN holders.

I checked one of their other US issues and yes, this appears to be standard (as far as a sample of two issues goes, anyway!):

The Bank may, at its option, with the prior written approval of the Superintendent of Financial Institutions appointed pursuant to the Office of the Superintendent of Financial Institutions Act (Canada) (“OSFI”) (the “Superintendent”), and without the consent of the Noteholders, redeem the Notes in cash, in whole or in part, on not less than 10 days’ and not more than 60 days’ prior written notice to the registered Noteholders, on the Initial Reset Date and each January 31, April 30, July 31 and October 31 thereafter (each, an “Optional Redemption Date”), at a redemption price which is equal to the aggregate of (i) the principal amount of the Notes to be redeemed, and (ii) any accrued and unpaid interest on such Notes up to but excluding the date of redemption (the “Redemption Price”).

US consumer inflation ticked up:

The cost of living continues to increase for Americans at a time when the job market appears to be on shakier footing, creating a complicated economic problem that could be tricky to solve.

Consumer prices rose 0.4% in August, driving the annual inflation rate to 2.9%, the highest since January, according to Bureau of Labor Statistics data released Thursday. The reading marked an acceleration from the 2.7% increase seen in July, with price hikes driving up the cost of Americans’ most basic needs.

Grocery and fuel prices shot higher in August after falling the month before. Food at home prices rose 0.6% — the highest monthly jump in nearly three years — and gas prices climbed by 1.9% after falling 2.2% the month before.
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Paychecks also aren’t going as far as they used to: Real (inflation-adjusted) hourly earnings slowed to 0.7% in August, the lowest gain in more than a year, BLS data shows.

Wholesale inflation in the States is basically flat, but this came at the apparent expense of domestic profit margins:

Producer prices unexpectedly fell 0.1% in August, cooling annual inflation to 2.6% from a downwardly revised 3.1% in July, according to Bureau of Labor Statistics data.

Helping to drive prices lower was a 1.7% drop in trade services, a category reflective of producers, wholesalers and retailers’ profit margins. If margins are shrinking, it could be an indication that businesses are using those to eat higher costs, economists have said.

The trade services category can be highly volatile; however, August’s drop is the biggest monthly decline there in more than a year.

When excluding highly volatile components like trade services, as well as food and energy, the underlying inflation trend appears less rosy: Prices rose 0.3% from July and ticked up to 2.8% for the 12 months ended in August.

Meanwhile, Miran made it through committee en route to the Fed governor nomination:

On Wednesday, Stephen Miran’s nomination to become a Fed governor got the green light in a procedural Senate committee vote Wednesday. Soon, all 50 senators will vote on whether to confirm him — a hurdle Miran is expected to clear in time to join the Fed for its rate-setting meeting next week.
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In written responses to the banking committee, released Tuesday, Miran said that, if confirmed, he won’t commit to resigning when the governor term ends in January if a permanent successor hasn’t been named. When Trump nominated Miran last month, he said it would be a temporary appointment to finish out Kugler’s unexpired term. Miran, currently the chair of the Council of Economic Advisers, reiterated that plan last week during his confirmation hearing.

But Lisa Cook remains in office:

A federal judge late Tuesday blocked President Donald Trump’s unprecedented effort to fire Federal Reserve Governor Lisa Cook.

“President Trump has not identified anything related to Cook’s conduct or job performance as a Board member that would indicate that she is harming the Board or the public interest by executing her duties unfaithfully or ineffectively,” Judge Jia Cobb, an appointee of former President Joe Biden, wrote, as she granted Cook’s request to stop the attempted firing.

The decision comes just weeks after Trump said he fired Cook — the first Fed governor ever to be fired by the president. The administration is expected to appeal Cobb’s preliminary injunction, which ensures the Federal Reserve must keep Cook on as a governor while the legal challenge plays out.

Cobb said on first look Cook’s claim that she was improperly fired is a valid one and that it violated her rights under the Fifth Amendment. At the same time, the judge, who sits on the federal bench in DC, said she believed the issue brings up new legal questions that need to be addressed over the long term.

“President Trump’s actions and Cook’s resulting legal challenge raise many serious questions of first impression that the Court believes will benefit from further briefing on a non-emergency timeline,” Cobb wrote. “However, at this preliminary stage, the Court finds that Cook has made a strong showing that her purported removal was done in violation of the Federal Reserve Act’s ‘for cause’ provision.”
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“The Court finds that permissible cause for removal of a Federal Reserve Governor extends only to concerns about the Board member’s ability to effectively and faithfully execute their statutory duties, in light of events that have occurred while they are in office,” the judge wrote.
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“While admitting that the President cannot remove an official for policy disagreements, the Government claims … a removal on the grounds of a policy disagreement would nevertheless be unreviewable,” Cobb wrote.

“This cannot be the case,” she added. “Such a rule would provide no practical insulation for the members of the Board of Governors. It would mean that the President could, in practice, ‘remove a member … merely because he wanted his own appointees on the’ Board of Governors.”
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If Cook, a Biden appointee, is successfully removed, it would leave only two Fed governors appointed by a Democratic president on the seven-member board.

“We’ll have a majority very shortly,” Trump said during a recent Cabinet meeting. “So, that’ll be great. Once we have a majority, housing is going to swing, and it’s going to be great.”

Wow. Trump is going to be surprised when he finds out that American residential mortgages are priced off the 10-year bond, not policy rates.

And the jobs number statistics operation is being checked:

The Department of Labor is initiating an investigation into how the Bureau of Labor Statistics collects and reports “closely watched economic data,” according to a letter the department’s Assistant Inspector General for Audit, Laura Nicolosi, sent to Acting BLS Commissioner William Wiatrowski on Wednesday.
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While members of the Trump administration said on Tuesday that the annual revisions are a sign that the president inherited a worse economy from former President Joe Biden, they’ve also said that it’s proof that changes need to be made at the BLS to improve the accuracy of data.
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At the same time, BLS officials have, for more than a decade, sounded alarm bells about being too underfunded and too understaffed to implement the necessary practices to modernize data collection, analysis and reporting. In recent months, the agency has cited staffing challenges as the reason for reduced collections on critical inflation data.

In addition to employment data, Nicolosi’s letter specified that her team’s investigation would also focus on “challenges and related mitigating strategies” for two of the BLS’ most closely tracked monthly inflation reports: the Consumer Price Index and the Producer Price Index.

Wait until the Trump administration learns that quality costs money! That’ll be fun.

PerpetualDiscounts now yield 5.63%, equivalent to 7.32% interest at the standard conversion factor of 1.3x. Long corporates yielded 4.87% on 2025-9-9 and the price of the fund increased from 15.22 (2025-9-9) to 15.29 (2025-9-10), or 46bp, with a duration of 12.27 (BMO does not specify what kind of duration; I will assume Modified) implying a yield decrease of 4bp, implying in turn a 2025-9-10 yield of 4.83%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now 250bp, a sharp widening from the 230bp reported September 3.

The annual revision of the US jobs numbers came with a surprise:

The American jobs market has been running in a much lower gear than previously thought, according to a preliminary report released Tuesday.

The US economy added about 911,000 fewer jobs than initially estimated for the year ending in March, the Bureau of Labor Statistics report suggests. If this were to hold – the final annual benchmark revision will be reported in February 2026 – it would be the largest annual revision to US jobs data on record.

Tuesday’s revisions release is the first step in BLS’ annual benchmark review of jobs data, a process that has taken place in some shape or form going back 90 years.
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The preliminary benchmark revision of -911,000 came in on the high end of economists’ estimates and accounts for about a 0.6% share of overall employment. The annual benchmark revisions during the past 10 years had an absolute average of 0.2% of total nonfarm employment, BLS data shows.

If spread out through the year ended in March, the revision would lower the average monthly job gains by nearly 76,000 positions between April 2024 and March 2025. As it stands now, job growth during that period was 146,500 per month.

If finalized, this downward revision would bring that to about 70,500 per month, BLS data shows.
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Economists said Tuesday that the massive revision was probably attributable in part to the pandemic throwing out of whack the so-called birth-death model, a longstanding statistical tool that’s used to measure business and job creation.

Prior to Tuesday’s release, economists predicted that a large downward revision was likely due to three primary factors: weaker-than-inferred job creation at new firms; sampling errors resulting from declining survey response rates; and, adjustments for asylum-seekers and other undocumented workers.

I haven’t seen any political reaction to this; perhaps because it’s too much of a hot potato!

The SURVEY OF CONSUMER EXPECTATIONS came out today:

August Survey: Inflation Expectations Up at Short-Term Horizon; Consumers’ Job Finding Expectations Drop to Series Low

Median inflation expectations ticked up 0.1 percentage point (ppt) to 3.2 percent at the one-year-ahead horizon and were unchanged at 3.0 percent at the three-year-ahead and at 2.9 percent at the five-year-ahead horizon.

The mean perceived probability of finding a job if one’s current job was lost fell markedly by 5.8 ppt to 44.9 percent, the lowest reading since the start of the series in June 2013.
Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—increased by 1.7 ppt to 39.1 percent. The mean perceived probability of losing one’s job in the next 12 months ticked up by 0.1 ppt to 14.5 percent.

The median expected growth in household income remained unchanged for the second consecutive month at 2.9 percent in August. Median household spending growth expectations increased by 0.1 ppt to 5.0 percent.

And the Fed has a new high-profile defender:

While many CEOs have stayed silent during President Donald Trump’s attacks on the Federal Reserve, hedge fund billionaire Ken Griffin is speaking out about the dangers.

Trump risks “stoking both higher inflation and higher long-term rates” by undermining the independence of the Fed, Griffin co-wrote in an op-ed in The Wall Street Journal on Sunday titled “Trump’s risky game with the Fed.”

“The president’s strategy of publicly criticizing the Fed, suggesting the dismissal of governors and pressuring the central bank to adopt a more permissive stance towards inflation carries steep costs,” wrote Griffin, CEO of Citadel; and Anil Kashyap, a professor at the Chicago Booth Business School and a consultant to the Chicago Fed’s research department.

The duo warns that history shows how this strategy can backfire, including the Nixon-era pressure on the Fed in the 1970s that set the stage for the Great Stagflation crisis.
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The warning represents a rare reprimand from a CEO at a time when many business leaders have tried to steer clear of publicly criticizing the president and others have gone out of their way to curry favor. Big bank CEOs publicly defended Fed independence this summer, while avoiding criticizing Trump directly.

Griffin, who has said he voted for Trump in last November’s election, has repeatedly slammed the administration’s trade war.

LCS.PR.A closed at 11.94 today, +3.38%, erasing over half of Friday’s loss … and providing a textbook illustration of the term “market impact”. But fear not, investment professional bonus fans! Friday’s trading will have resulted in a selling price for the position not very far from the VWAP on that day; therefore the trading was perfect; the trader and the portfolio manager (assuming these are different people) have nothing to be blamed for … even assuming the boss notices.

Jobs, jobs … whoopsy!:

The labor market appears to be stalling.

The economy added only 22,000 jobs in August, well below the number that forecasters had expected. That suggests employers’ appetite for new recruits has faded markedly in the last several months.

The unemployment rate rose very slightly to 4.3 percent, and wages grew at 3.7 percent over the past year, the lowest growth since July 2024.
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With revisions, the labor market now appears to have lost 13,000 jobs in June, the first negative number since December 2020. In total, numbers for the previous two months were revised down by 21,000 jobs.

Meanwhile, in the frozen north:

The Canadian economy shed 66,000 jobs in August and the unemployment rate jumped to 7.1 per cent, the latest signs that the labour market is reeling from prohibitive U.S. tariffs.

Outside of the pandemic, the unemployment rate now resides at the highest level since 2016, Statistics Canada said Friday in a report, rising from 6.9 per cent in July. The numbers show that the bulk of job losses in August were in part-time work.
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The data also suggested a more concerning trend: that employment decreases have spread beyond manufacturing and resources – directly hit by tariffs – to the broader service sector. In particular, the professional and scientific sectors saw 26,000 job losses, or a 1.3-per-cent decline in employment.
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Returning students are facing the worst job market in 16 years (excluding the pandemic), according to youth unemployment data from Statscan. Between May and August this year, the unemployment rate for that demographic stood at 17.9 per cent. It was 18 per cent in the summer of 2009.

The market responded:

Market-implied odds of a quarter-point rate cut by the Bank of Canada this month surged to about 90% in the wake of weaker-than-expected jobs reports this morning in both Canada and the U.S. Most economists are also now expressing confidence a rate cut is coming.
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Implied interest rate probabilities in overnight swaps markets now show about a 90% probability of a 25 basis point BoC cut on Sept. 17, up from about 75% prior to the data and about 65% on Thursday. Those market bets for a rate cut have been trending higher throughout this week, and were only at about 40% last week before a sluggish GDP reading was released for the second quarter on Friday. A series of dovish remarks from Federal Reserve officials and weak U.S. economic readings earlier this week had already been persuading traders to raise their bets for a rate cut in both the U.S. and Canada.

Market-based odds of a Federal Reserve rate cut on Sept. 17 (both central banks will make their policy decisions that day) also further rose following the release of the U.S. jobs data. Three Fed rate cuts are now priced into the market by the end of this year.
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Meanwhile, U.S. and Canadian bond yields moved sharply lower across the curve. The U.S. 10-year bond yield was down about 10 basis points to 4.079% after the jobs reports, and the 2-year was also down by about 10 basis points.

Canada’s five-year yield, which is particularly closely watched because of its influence on fixed mortgage rates, was down about 9 basis points at 2.805% – its lowest level since the start of June.
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Here, in detail, is how implied probabilities of future interest rate moves stood in swaps markets moments for Canada after the jobs report Friday. The current overnight rate is 2.75 per cent. While the bank moves in quarter-point increments, credit market implied rates fluctuate more fluidly and are constantly changing. Columns to the right are percentage probabilities of future rate moves. As shown, markets are nearly fully pricing in 50 basis points of monetary easing by next spring.

Pre-Jobs Swaps Market

Post-Jobs Swaps Market

Bessent has floated the idea of taking regulatory authority away from the Fed:

Bessent wrote in the Wall Street Journal that the central bank has veered away from what he described as its core mission of promoting full employment, stable prices and moderate long-term interest rates.

President Donald Trump’s top economic official is doubling down on an idea he has trumpeted for months: The Fed has overstepped its bounds by taking on banking regulation, and that must stop.

“The Fed now regulates, lends to and sets the profitability calculus for the banks it oversees, an unavoidable conflict that blurs accountability and jeopardizes independence,” Bessent wrote. “There must also be an honest, independent, nonpartisan review of the entire institution, including monetary policy, regulation, communications, staffing and research.”
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Though Powell has been critical of bank supervision and regulation all being under the purview of one member on the Fed’s Board of Governors designated as a vice chair.

“You’ve got a group of seven people on the board, and as appointments change, there’ll be some changes in the approach to regulation,” Powell told lawmakers during a hearing in February. “Putting it all in a single person, admittedly, just to recommend to the board can lead to some volatility … and that’s not great for the institutions we want to regulate.”

Fed Vice Chair for Supervision Michelle Bowman is currently the person at the central bank with that responsibility. Trump elevated her to that post earlier this year, and she has kicked off a comprehensive review of the capital requirements for the nation’s largest banks.

There will be, of course, a political angle to this suggestion, but this idea has been floating around for quite some time. I’ve previously written about it on PrefBlog … somewhere! … and while keeping an open mind am inclined to support the idea of separation of powers, simply on the grounds that a single institution shouldn’t have so much power.

As an example of the debate, I suggest The Supervisory Role of the Central Bank by PIERRE DUQUESNE:

It is quite naturally assumed nowadays that responsibility for monetary policy devolves upon the central bank. The question of who should be responsible for banking supervision, however, is much more controversial despite the historical backdrop concerning institutional responsibility. As Paul Volcker, former chairman of the Federal Reserve System, pointed out on the occasion of the one hundredth anniversary of the Banca d’ltalia, some central banks, like those of the United States and Italy, were “founded much more out of concern about banking stability than out of ideas about monetary policy as we know it today.”
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The controversy over the role of the central bank centers on a basic question: is it preferable, for the effectiveness of monetary policy and banking supervision, that the institutions responsible for monetary policy and banking supervision be independent or come under the same joint authority, even be one and the same institution? The many different systems in existence reflect the history of individual institutions and the particular circumstances in each country. Neither economic theory nor an analysis of the institutional arrangements suggests that one particular model is objectively more effective than all others.

If one looks at the special features of the French system and compares them with the general principles underlying other countries’ arrangements, the wide range of possible approaches becomes apparent. But the French system seems to mix the advantages of having a banking supervisory function closely related to the central bank with those of it having a legal independent status. A further model (the planned European System of Central Banks, or ESCB) will add another element to this already complex picture.

Theoretical Issues in Banking Supervision
Theoretical analysis does not suggest that one institutional model for banking supervision is superior to all others.

And Miran proceeded along the confirmation process:

But Democrats questioned Miran’s ability to distance himself from Trump, should he be confirmed to become a Fed governor. Miran said Thursday he plans to technically remain an employee of the White House if he becomes Fed governor on a temporary basis.

He told lawmakers he would take a leave of absence from his current role as chair of the Council of Economic Advisers if his Fed term lasts only through January, but said he would resign if he remains for longer. He said he was advised to take that approach by legal counsel.

“You are going to be technically an employee of the President of United States, but an independent member of the board of the Federal Reserve. That’s ridiculous,” Democratic Sen. Jack Reed of Rhode Island said.
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Before doing a complete 180 on his views about Fed independence, Miran, a Harvard-trained PhD economist, had challenged it in the recent past.

Last year, Miran co-authored a Manhattan Institute report that called the Fed’s independence an outdated “shibboleth,” and he called for shorter terms for Fed governors to give the president more power to hold sway over the agency.

The paper also criticized the revolving door of leaders between the White House and the Fed. Some senators characterized Miran’s nomination as ironic.

Sen. Tina Smith of Minnesota said “given the nature of your current role and your expressed concern in mind for insulating the Fed board members from the day-to-day political process, I just don’t understand how your nomination doesn’t break the rule or the goal that you’ve set out yourself.”

In response, Miran said his paper simply laid out proposals to reform the Fed and that “it’s important that we have democratic oversight.”
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In response to a question posed by Sen. Andy Kim of New Jersey, Miran said he hasn’t been asked by Trump or anyone in the administration to vote for lower interest rates if he’s confirmed.

Sen. Elizabeth Warren of Massachusetts, the committee’s Democratic ranking member, also criticized Miran for coming “from a highly political role to a non-political role.” At one point, she pressed him to state that Trump lost the 2020 election, which he refused to state outright.

Miran is also one of the main architects of Trump’s aggressive trade policy. In a November 2024 paper, Miran detailed how a tariff-centric approach, aimed at weakening the dollar, could reshape the global trading system in favor of the United States. But if confirmed to be a Fed governor, Miran would no longer play a role in shaping the administration’s fiscal and trade policy.

Today, let’s have a special shout-out for LCS.PR.A! This issue was down 5.33% today … I guess that somebody noticed that it pays $0.70 p.a. and is set to mature 2029-4-27 at par. It almost certainly won’t actually mature, of course, it will just be extended at a new dividend rate – but you can’t really count on a 2029-4-27 price of more than about 10.25 or so, depending on how well the managers gauge the market. So it closed yesterday at 12.20, meaning that it had an expected capital loss slightly in excess of three years dividends, and only has a term of a little over 3.5 years. The close today was 11.55 … but even at a bid of 11.05, the yield to maturity ($10.00) is only 4.02%.

Drives me nuts. I can’t stand it. But nobody ever listens to me.

Hats off, again, to the medical profession!

As national medical, scientific, public health and patient organizations, we call for the resignation of HHS Secretary Robert F. Kennedy Jr. to ensure the health of the American people.

Forcing high-level CDC expert leaders to turn their back on decades of sound science to meet Kennedy’s agenda puts us all at risk. This final exclamation point on a term defined by repeated efforts to undermine science and public health definitively leaves Americans less safe in a multitude of ways:
…
We are gravely concerned that American people will needlessly suffer and die as a result of policies that turn away from sound interventions. After careful consideration, we insist on Kennedy’s resignation to restore the integrity, credibility and science-driven mission of HHS and all its agencies. Our country needs leadership that will promote open, honest dialogue, not disregard decades of lifesaving science, spread misinformation, reverse medical progress and decimate programs that keep us safe. We are speaking out because protecting public health is our responsibility as physicians, scientists and patient advocates. It is also the responsibility of our elected officials, and we call for their support at this critical moment to protect the health of the nation. It is time to reverse course and begin rebuilding the public health infrastructure overseen by CDC. Kennedy has proven himself unwilling and ill-prepared to lead that effort.

Thank you,  

Infectious Diseases Society of America 
[20 other signatory organizations]

This follows the IDSA’s commentary on the Monarez firing and consequent resignations discussed August 28:

The mass resignations of CDC expert leaders present a clear and present danger to Americans of all ages and leave our nation extremely vulnerable to a wide range of public health threats from outbreaks to bioterror attacks. As we near respiratory virus season, it is imperative that our country have expert public health leadership for effective surveillance, communications and responses.

This loss of highly experienced CDC leadership is the latest devastating result of the Administration’s sustained attacks on public health, and it absolutely must be the last. It is time for fundamental changes and a return to evidence-based policy. The Administration’s current trajectory for destroying the public health system is reckless and cannot continue.

The organizations have more backbone than an entire caucus of Republicans.

Meanwhile, the non-surreal world braces for tomorrow’s jobs number:

New metrics released Thursday showed that first-time claims for unemployment benefits rose to an 11-week high; that private-sector businesses sharply reined in their hiring last month; and that last month was the worst August for layoff announcements since the pandemic and, before that, the Great Recession.
…
The latest data tees up an August jobs report that, when released Friday morning, is expected to show another month of tepid job gains. Economists have forecast that the economy added 80,000 jobs last month, which would be a slight increase from the slower-than-expected 73,000 net gain in July.

I’ve added a note about the Business Development Bank to yesterday’s post about OSFI.

PerpetualDiscounts now yield 5.68%, equivalent to 7.38% interest at the standard conversion factor of 1.3x. Long corporates yield 5.10%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now 230bp, a slight (and perhaps spurious) narrowing from the 235bp reported August 27.