Category: Market Action

PerpetualDiscounts now yield 5.69%, equivalent to 7.40% interest at the standard conversion factor of 1.3x. Long corporates yielded 4.74% on 2026-2-25. Therefore the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened slightly (and perhaps spuriously) to 265bp from the 260bp reported February 18

Kevin Hassett won today’s running of the sycophancy sweepstakes:

National Economic Council Director Kevin Hassett said Wednesday that researchers at the New York Federal Reserve who produced a study finding American businesses and consumers are shouldering 90% of the cost of President Donald Trump’s tariffs should be “disciplined.”

“It’s, I think, the worst paper I’ve ever seen in the history of the Federal Reserve system,” Hassett told CNBC in an interview.

“The people associated with this paper should presumably be disciplined, because what they’ve done is they’ve put out a conclusion which has created a lot of news that’s highly partisan based on analysis that wouldn’t be accepted in a first-semester econ class,” Hassett continued.

Hassett’s primary concern with the research was, in his view, that it only focused on price-related effects of tariffs and not changes in the volume of imports.

However, that’s not entirely true. In assessing the tariff burdens, the authors calculate average duty rates over various periods of time. They define that as “the total monthly tariff revenue divided by the total value of imports in the month,” meaning import volume is taken into consideration. Specifically, they looked at how “global supply chains shifted in response to the higher tariffs.”

This is spine-chilling. This clown, spoken of seriously as a contender for Fed chair, wants to discipline Fed researchers for, um, researching. This is one example of why Central Bank independence is so important; political clowns with the ability to push political ideas and discipline those who might claim the emperor has no clothes will lead to disaster in pretty short order.

Is the blog post right? Wrong? For the purposes of this argument, that’s irrelevant. If Hassett thinks it’s wrong and should be refuted, he should write a rebuttal and publish it. That’s how the scientific method works. But the Boss Thug can’t be bothered with actual coherent arguments and, therefore, neither can his bootlickers.

It’s happened elsewhere already, of course: people have been disciplined for such things as looking at climate change, DEI and vaccines with open eyes – even for being assigned to investigate Trump’s various alleged legal transgressions during the Biden interregnum. But this is both immediate and with respect to an institution that is highly important to … everybody in the world, basically.

In more civilized academic news, the Bank of Canada has released a Staff Analytical Paper by Nishaad Rao and Tao Wang titled Channels of Transmission: How Mortgage Rates Affect House Prices and Rents in Canada:

We use Canadian data to examine how monetary policy affects house prices and the consumer price index for rent (CPI-rent) through exogenous changes in the mortgage interest rates. Nationwide, tighter monetary policy lowers house prices but raises CPIrent, likely due to higher user costs for landlords or greater relative demand for rental housing. City-level analysis shows that, in response to tighter monetary policy, house prices fall most in cities where supply is inelastic, while CPI-rent tends to rise in cities with lower proportions of households moving from renting to owning.
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We find that an increase in mortgage rates of 100 basis points (as instrumented for by monetary policy shocks) causes house prices to decline by 5% (10%) over a 1-year (2-year) horizon. In contrast, CPI-rent increases by 2%–3% (5%–6%) over a 1-year (2-year) horizon, although the estimates are less significant. Consistent with the channels of the user cost or ownership choice that were previously explained, the relative prices of renting versus owning, measured as the rent-to-price ratio, increase by around 18% (28%) at a 1-year (2-year) horizon in response to an increase in mortgage rates of 100 basis points.

Our estimates of the impact of a monetary policy shock on CPI-rent are similar to Abramson, De Llanos and Han (2025), who use microdata on rent prices, but slightly higher than those of Dias and Duarte (2019). Dias and Duarte (2019) find that a monetary policy shock of 100 basis points raises CPI-rent by 0.6 percentage points over 12 months, while we estimate an increase of 1 percentage point after a monetary policy rate shock of 100 basis points (corresponding to an increase of about 50 basis points in the mortgage rate under an estimated pass-through of 0.5).
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We find evidence that the impact of monetary policy on house prices and CPI-rent operate through various channels and that these impacts vary by region.

While house prices unambiguously decline after a shock to mortgage rates induced by monetary policy, the extent to which they do depends on the elasticity of housing supply in that area. After a demand shock induced by monetary policy [tightening?], we find that a more inelastic supply implies larger price movements.

CPI-rent’s response to such shocks is more ambiguous and can go in either direction. User cost effects imply landlords want to pass on their increased mortgage costs to renters. Indeed, we find that lower expected prices lead to higher rents, maybe because landlords seek to increase rents to compensate for lower expected capital gains. Fewer rent-to-own transitions put additional upward pressure on rents. Indeed, we find that cities with the largest declines in originations for first-time homebuyers after a mortgage rate change are also cities where CPI-rent increases more. In contrast, the negative labour market impacts of tighter monetary policy may reduce household income and therefore lower demand for rental units. The overall quantitative assessment of the strength of each channel is left for future research.

PerpetualDiscounts now yield 5.64%, equivalent to 7.33% interest at the standard conversion factor of 1.3x. Long corporates yielded 4.73% on 2026-2-18. Therefore the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened significantly to 260bp from the 245bp reported February 11.

Sorry this is late!

The New York Fed has released a Staff Report by Natalia Emanuel and Emma Harrington titled The Payoffs of Higher Pay: Labor Supply and Productivity Responses to a Voluntary Firm Minimum Wage:

What are the returns to firms of paying more? We study a Fortune 500 firm’s voluntary firm-wide $15/hour minimum wage, which affected some warehouses more than others. Using a continuous difference-in-differences design, we find that a $1/hour pay increase (5.5 percent) halves worker departures, reduces absenteeism by 18.6 percent, and increases productivity (boxes moved per hour) by 5.7 percent. These productivity gains fully defrayed increased labor costs, offsetting the firm’s incentive to mark down wages. We develop a simple model that connects efficiency-wage incentives and monopsony power, showing how these forces can counterbalance each other to keep wages closer to workers’ marginal revenues.

Yup. In most cases, sweating your labour is false economy.

Jobs, jobs, jobs!

US job growth was historically weak last year. And US job growth was significantly stronger than expected at the start of this year.

In the January jobs report released Wednesday – a Schrödinger’s cat of employment snapshots – the seemingly opposed dynamics both held true.

The US economy added an estimated 130,000 jobs last month, and the unemployment rate ticked down a tenth of a percentage point to 4.3%, according to new Bureau of Labor Statistics data.
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Health care and social assistance drove the lion’s share of last month’s employment gains, with an estimated 123,500 jobs added.

That was followed by the 34,000 jobs gained in professional and business services, including employment services, administrative and other white-collar roles. Construction, likely helped by unseasonably warm weather at the start of the month, added 33,000 jobs.

Many other sectors, notably government (-42,000 jobs), either shed jobs or reported very weak gains.

… and …:

The Employment Cost Index, which measures changes in wages and benefits, rose 0.7% during the last three months of 2025, marking the slowest quarterly increase since 2021, BLS data showed.

The markets reacted a bit:

The Canadian dollar edged lower against its U.S. counterpart on Wednesday as stronger-than-expected U.S. ⁠jobs ​data reduced expectations for Federal Reserve interest rate cuts, offsetting higher oil prices.

The loonie was trading 0.1% lower at 1.3560 per U.S. dollar, or 73.75 U.S. cents, after moving in a range of 1.3505 to ​1.3618.
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Canadian bond yields moved lower across a flatter curve. The 10-year was down 2.4 basis points at 3.338%, while the gap between it and the equivalent U.S. rate widened by 5.5 basis ​points to 83.8 basis points in favor of the U.S. note.

PerpetualDiscounts now yield 5.66%, equivalent to 7.36% interest at the standard conversion factor of 1.3x. Long corporates continue to yield 4.92% on 2026-2-11. Therefore the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has remained steady at the 245bp reported February 4.