Month: September 2025

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:
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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.
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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.

The Institute for Supply Management (ISM) survey came out today:

U.S. manufacturing contracted for a sixth straight month in August as factories dealt with the fallout from the Trump administration’s import tariffs, with some manufacturers describing the current business environment as “much worse than the Great Recession.”

The Institute for Supply Management (ISM) survey on Tuesday also showed some manufacturers complaining that the sweeping import duties were making it difficult to manufacture goods in the United States. President Donald Trump has defended his protectionist trade policy, which has raised the nation’s average tariff rate to the highest in a century, as necessary to revive a long-declining U.S. industrial base.

That was reinforced by government data showing spending on the construction of factories dropped in July and was down 6.7 per cent from a year ago. A U.S. appeals court ruled last Friday that most of Trump’s tariffs were illegal, adding more uncertainty for businesses.
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The ISM said its manufacturing PMI edged up to 48.7 last month from 48.0 in July. A PMI reading below 50 indicates contraction in manufacturing, which accounts for 10.2 per cent of the economy. Economists polled by Reuters had forecast the PMI would rise to 49.0.
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Tariffs continued to dominate commentary from manufacturers. Some makers of transportation equipment said conditions were worse than the 2007-09 recession, adding “there is absolutely no activity” and “this is 100 percent attributable to current tariff policy and the uncertainty it has created.” Some viewed the conditions as consistent with “stagflation.”

Some electrical equipment, appliances and components producers complained that “‘made in the USA’ has become even more difficult due to tariffs on many components.” They said the “administration wants manufacturing jobs in the U.S., but we are losing higher-skilled and higher-paying roles.” Others reported that because of the lack of “stability in trade and economics, capital expenditures spending and hiring are frozen.”

Manufacturers of computer and electronic products said “tariffs continue to wreak havoc on planning and scheduling activities,” adding that “plans to bring production back into (the) U.S. are impacted by higher material costs, making it more difficult to justify the return.”

Food, beverage and tobacco products manufacturers warned that everything made of organic sugar was “about to get significantly more expensive” because of a 50 per cent tariff on imports from Brazil and the U.S. Department of Agriculture’s elimination of the specialty sugar quota.

Markets are in a bit of a tizzy:

France’s 30-year government bond yields hit their highest levels in more than 16 years on Tuesday at around 4.5%, while yields on 30-year German bonds hit a fresh 14-year high at about 3.4%. In the UK, 30-year gilt yields notched their highest mark since 1998, as investors looked warily ahead to the government’s autumn budget plans.
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The U.S. 30-year yield was up 5.1 basis points at 4.96%, while benchmark 10-year Treasury yields rose 4.5 bps to 4.27%. Canada’s 10-year yield rose 7 basis points to 3.44%, although that was well within trading ranges of the past month.
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Europe’s broad Stoxx 600 share benchmark was down 1.5%. The S&P 500 was down 0.69%, the Dow Jones industrial average lost 0.55%, and the Nasdaq fell 0.82%.

The S&P/TSX composite index ended up 0.2% at 28,615.62, eclipsing Friday’s record closing high.