PrefBlog

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.

Nothing much happened today in the continuing saga of the Lisa Cook – Trump lawsuit:

An emergency court hearing over President Donald Trump’s attempt to fire Federal Reserve Governor Lisa Cook ended with no immediate ruling from the judge overseeing the high-stakes legal battle.

US District Judge Jia Cobb spent more than two hours Friday morning hearing arguments over Cook’s request to keep her job on the prominent board while her legal challenge plays out.
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Cobb has asked for more written arguments to be submitted to her by next Tuesday. It’s possible she rules after then, or takes additional time to sift through how to best proceed with the case. Her options include setting it on an expedited track for a prompt resolution of Cook’s underlying claims.

Though Cobb, an appointee of former President Joe Biden, held off for now on making an initial ruling in the case, she also made clear that she wasn’t prepared to fully buy into arguments pushed by either Cook or Trump.

The judge pushed back on a suggestion by Justice Department attorney Yaakov Roth that federal courts have no authority to second-guess a decision by a president to fire a member of the Federal Reserve “for cause.” But even with that judicial power, Cobb said, there still may be some level of deference by a court to the president’s decision-making.

“Deferential doesn’t mean that there’s no probing of it,” the judge said. “You just assume good faith, you defer.”

But Cobb also appeared sympathetic to arguments pushed by Cook’s lawyer, Abbe Lowell, that Cobb wasn’t given adequate notice of Trump’s reason for removing her, as well as an opportunity to defend herself against the fraud allegations underpinning the president’s decision.

“You’re not suggesting what happened here would satisfy due process requirements?” the judge asked Roth at one point.

“Was anything sent to her directly?” she added, referring to the fact that Trump’s had only posted a letter addressed to Cook announcing her firing on social media. “You still have to serve someone. You have to give them information.”

But Lowell ran into issues with Cobb over his argument that Trump’s decision to lean on the fraud allegations was pretextual since he has been vocal about his desire to install members on the board who are more aligned with him on monetary policy.

“I’m unconformable with the pretext argument,” the judge said at one point.

Canada 25Q2 GDP showed a contraction:

The Canadian economy contracted sharply in the second quarter as trade tensions with the United States hammered exports and weighed on business investment.

Real gross domestic product declined 1.6 per cent at an annualized rate, the first quarterly contraction in nearly two years, Statistics Canada reported on Friday.

The result was in line with the Bank of Canada’s projection but considerably worse than Bay Street analysts were anticipating. A Reuters poll ahead of the data expected a 0.6-per-cent decline.
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The downturn in the second quarter was led by a massive 26.8-per-cent annualized drop in exports as U.S. President Donald Trump’s levies began to bite and tariff front-running in the first quarter went into reverse. Automobile and industrial machinery exports were hit particularly hard. Imports declined 5.1 per cent.

The uncertainty created by the trade war also weighed on business investment, which fell at an annualized pace of 10.1 per cent in the second quarter, the worst result since 2016, outside of the COVID-19 pandemic.

Naturally, there was an effect on the market:

Market-implied odds of a quarter-point rate cut by the Bank of Canada next month shot up in the wake of this morning’s weaker-than-expected GDP reading for the second quarter.
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Money markets were predicting chances of a rate cut on Sept. 17 at close to 40% before the GDP figures were released. They shot up to about 47% after the data were released, implying almost equal odds of whether there will be a rate cut next month or not.

Monthly employment and CPI data will still be released before the Bank of Canada will make its decision on a September rate cut.

The Canadian dollar immediately reacted to the data, falling by two-tenths of a cent to 72.55 cents US. It didn’t take long for it, however, to recover.
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Here’s how implied probabilities of future interest rate moves stood in swaps markets moments [before and] after the 8:30 a.m. data, according to LSEG data. The current overnight rate is 2.75%. 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 Swaps Market

Post-Announcement Swaps Market

Continuing the Trump-Cook reporting from yesterday, Lisa Cook has filed her lawsuit:

Federal Reserve Governor Lisa Cook is suing to keep her job on the board, which helps set interest rates, after President Donald Trump said he was removing her from her role earlier this week.

Cook’s lawsuit, filed Thursday morning in federal court in Washington, DC, asks for a judge to rule that Trump’s attempt to remove her is unlawful and that she remains an active member of the Federal Reserve.

A hearing on her request for a temporary restraining order has been scheduled for 10 a.m. ET on Friday in front of Judge Jia Cobb, an appointee of former President Joe Biden.

Cook’s lawsuit sets the stage for what could be a high-stakes legal battle with major implications for the Fed and the power of the presidency, even as Trump moves to consolidate his hold over parts of the government once considered sacrosanct and free from political influence.

Now, Lord knows I don’t want to make this a political blog – and get the comment section jammed up with whack-a-doodles – but I really want to mention my admiration for the one group of professionals that has stood up during the tumultuous times: the medical profession.

The American Academy of Pediatrics was the first:

The American Academy of Pediatrics released its updated recommendations for vaccines on Tuesday, including Covid-19 shots for infants and young children – a break from the current US for Centers for Disease Control and Prevention recommendations.

“It differs from recent recommendations of the Advisory Committee on Immunization Practices of the CDC, which was overhauled this year and replaced with individuals who have a history of spreading vaccine misinformation,” the AAP said in a news release.
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Tension between AAP and those driving federal health policy has been running high for months, particularly around changes to the Advisory Committee on Immunization Practices, or ACIP.
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Dr. Sean O’Leary, chair of the AAP Committee on Infectious Diseases, said at the time that AAP liaisons to ACIP did not participate in the meeting “because we view it as illegitimate.”

“What we heard in this meeting was really a false narrative that the current vaccine policies are flawed and that they need fixing,” he said.

On August 22, it was reported that they had company – the American College of Obstetricians and Gynecologists also endorsed a different policy than that of the CDC:

The American College of Obstetricians and Gynecologists on Friday reaffirmed support for Covid-19 vaccination during pregnancy, becoming the second major professional medical association to break from current US Centers for Disease Control and Prevention recommendations this week.

“While the Centers for Disease Control and Prevention (CDC) recently removed its recommendation that pregnant and lactating individuals receive updated COVID-19 vaccines, ACOG’s recommendations have not changed,” according to the updated practice advisory. “The American College of Obstetricians and Gynecologists continues to recommend the use of updated COVID-19 vaccines in individuals contemplating pregnancy and in pregnant, recently pregnant, and lactating individuals.”

Now, four senior people have resigned from the CDC in support of Dr. Susan Monarez who, apparently, refused to follow instructions and fire them and has therefore been fired herself:

Monarez’s ouster, first reported by The Washington Post, burst into public view over several tumultuous hours Wednesday. Just weeks into her tenure as director, she had clashed with HHS Secretary Robert F. Kennedy over vaccine policy and her refusal to fire several veteran CDC leaders, according to people familiar with the situation.
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Monarez’s ouster followed days of internal pressure led by Kennedy’s deputy chief of staff and close confidante, Stefanie Spear, according to two people familiar with the situation. It also came soon after Kennedy summoned Monarez to Washington and demanded that she fire Dr. Debra Houry, the agency’s chief medical officer and deputy director of programs and science; Dr. Demetre Daskalakis, director of the National Center for Immunization and Respiratory Diseases; and Dr. Dan Jernigan, director of the National Center for Emerging and Zoonotic Infectious Diseases, according to two people familiar with the matter.

Monarez refused, angering Kennedy and triggering his move to remove her.

Monarez also clashed with Kennedy and his team over vaccine policies, including an impending announcement that could draw links between immunizations and autism, according to a person familiar with the situation.
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Shortly after Monarez’s departure was confirmed Wednesday, three other top CDC officials also announced that they were leaving. Dr. Debra Houry, the agency’s chief medical officer and deputy director of programs and science; Dr. Demetre Daskalakis, director of the National Center for Immunization and Respiratory Diseases; and Dr. Dan Jernigan, director of the National Center for Emerging and Zoonotic Infectious Diseases, were agency veterans whom staffers said were well-liked and trusted.
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Dr. Jennifer Layden, director of the Office of Public Health Data, Surveillance, and Technology, also left the CDC on Wednesday, according to a source familiar with the situation who asked not to be named because they weren’t authorized to share the information.

I did enjoy reading Dr. Demetre Daskalakis’ letter of resignation, posted on X.com

My resignation letter from CDC.

Dear Dr. Houry,

I am writing to formally resign from my position as Director of the National Center for Immunization and Respiratory Diseases at the Centers for Disease Control and Prevention (CDC), effective August 28, 2025, close of business. I am happy to stay on for two weeks to provide transition, if requested.

This decision has not come easily, as I deeply value the work that the CDC does in safeguarding public health and am proud of my contributions to that critical mission. However, after much contemplation and reflection on recent developments and perspectives brought to light by Secretary Robert F. Kennedy Jr., I find that the views he and his staff have shared challenge my ability to continue in my current role at the agency and in the service of the health of the American people. Enough is enough.

While I hold immense respect for the institution and my colleagues, I believe that it is imperative to align my professional responsibilities to my system of ethics and my understanding of the science of infectious disease, immunology, and my promise to serve the American people. This step is necessary to ensure that I can contribute effectively in a capacity that allows me to remain true to my principles.

I am unable to serve in an environment that treats CDC as a tool to generate policies and materials that do not reflect scientific reality and are designed to hurt rather than to improve the public’s health. The recent change in the adult and children’s immunization schedule threaten the lives of the youngest Americans and pregnant people. The data analyses that supported this decision have never been shared with CDC despite my respectful requests to HHS and other leadership. This lack of meaningful engagement was further compounded by a “frequently asked questions” document written to support the Secretary’s directive that was circulated by HHS without input from CDC subject matter experts and that cited studies that did not support the conclusions that were attributed to these authors. Having worked in local and national public health for years, I have never experienced such radical non-transparency, nor have I seen such unskilled manipulation of data to achieve a political end rather than the good of the American people.

It is untenable to serve in an organization that is not afforded the opportunity to discuss decisions of scientific and public health importance released under the moniker of CDC. The lack of communication by HHS and other CDC political leadership that culminates in social media posts announcing major policy changes without prior notice demonstrate a disregard of normal communication channels and common sense. Having to retrofit analyses and policy actions to match inadequately thought-out announcements in poorly scripted videos or page long X posts should not be how organizations responsible for the health of people should function. Some examples include the announcement of the change in the COVID-19 recommendations for children and pregnant people, the firing of scientists from ACIP by X post and an op-ed rather than direct communication with these valuable experts, the announcement of new ACIP members by X before onboarding and vetting have completed, and the release of term of reference for an ACIP workgroup that ignored all feedback from career staff at CDC.

The recent term of reference for the COVID vaccine work group created by this ACIP puts people of dubious intent and more dubious scientific rigor in charge of recommending vaccine policy to a director hamstrung and sidelined by an authoritarian leader. Their desire to please a political base will result in death and disability of vulnerable children and adults. Their base should be the people they serve not a political voting bloc.

I have always been first to challenge scientific and public health dogma in my career and was excited by the opportunity to do so again. I was optimistic that there would be an opportunity to brief the Secretary about key topics such as measles, avian influenza, and the highly coordinated approach to the respiratory virus season. Such briefings would allow exchange of ideas and a shared path to support the vision of “Making America Healthy Again.” We are seven months into the new administration, and no CDC subject matter expert from my Center has ever briefed the Secretary. I am not sure who the Secretary is listening to, but it is quite certainly not to us. Unvetted and conflicted outside organizations seem to be the sources HHS use over the gold standard science of CDC and other reputable sources. At a hearing, Secretary Kennedy said that Americans should not take medical advice from him. To the contrary, an appropriately briefed and inquisitive Secretary should be a source of health information for the people he serves. As it stands now, I must agree with him, that he should not be considered a source of accurate information.

The intentional eroding of trust in low-risk vaccines favoring natural infection and unproven remedies will bring us to a pre-vaccine era where only the strong will survive and many if not all will suffer. I believe in nutrition and exercise. I believe in making our food supply healthier, and I also believe in using vaccines to prevent death and disability. Eugenics plays prominently in the rhetoric being generated and is derivative of a legacy that good medicine and science should continue to shun.

The recent shooting at CDC is not why I am resigning. My grandfather, who I am named after, stood up to fascist forces in Greece and lost his life doing so. I am resigning to make him and his legacy proud. I am resigning because of the cowardice of a leader that cannot admit that HIS and his minions’ words over decades created an environment where violence like this can occur. I reject his and his colleagues’ thoughts and prayers, and advise they direct those to people that they have not actively harmed.

For decades, I have been a trusted voice for the LGBTQ community when it comes to critical health topics. I must also cite the recklessness of the administration in their efforts to erase transgender populations, cease critical domestic and international HIV programming, and terminate key research to support equity as part of my decision.

Public health is not merely about the health of the individual, but it is about the health of the community, the nation, the world. The nation’s health security is at risk and is in the hands of people focusing on ideological self-interest.

I want to express my heartfelt gratitude for the opportunities for growth, learning, and collaboration that I have been afforded during my time at the CDC. It has been a privilege to work alongside such dedicated professionals who are committed to improving the health and well-being of communities across the nation even when under attack from within both physically and psychologically.

Thank you once again for the support and guidance I have received from you and previous CDC leadership throughout my tenure. I wish the CDC continued success in its vital mission and that HHS reverse its dangerous course to dismantle public health as a practice and as an institution. If they continue the current path, they risk our personal well-being and the security of the United States.

Sincerely,

Demetre C. Daskalakis MD MPH (he/his/him)
7:14 PM · Aug 27, 2025

A man of integrity, pulling no punches!

The problem is: Trump wins anyway. Assuming that the plan is to destroy confidence in American instutitions (presuming that this is in order to make life for oligarchs a little freer from regulation and annoying facts) then duelling recommendations is a great place to start. How many people in the world are really qualified to make a sober choice between the Ob/Gyn’s recommendations ad the CDC’s? Not many. But we all have to choose anyway which means we can all create our own little bubbles of trusted authorities, picking and choosing according to factors that are not particularly germane to the actual science.

Gaining respect and building a superb team is hard. Losing respect and breaking up a superb team is easy.

To continue the Trump-Cook reporting from yesterday … Janet Yellen has weighed in:

Former Federal Reserve Chair and Treasury Secretary Janet Yellen slammed President Trump on Wednesday for moving to fire Fed board of governors member Lisa Cook, calling his actions “unlawful” and “dangerous.”

“US President Donald Trump’s claim that he has ‘fired’ Federal Reserve governor Lisa Cook ‘for cause’ is not only unlawful. It is profoundly dangerous,” she wrote in an opinion piece in the Financial Times.
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Yellen defended Cook in her article, saying she has done her job “with integrity.”

She also said Trump’s attempt to fire her was motivated by “intimidation.”

“By targeting Cook, Trump is sending a chilling message to every member of the Federal Reserve board and to the regional reserve bank presidents who take part in the Federal Open Market Committee: express disagreement with the president’s views and you are next,” she wrote.

Yellen also said that Trump’s move against Cook undermines the independence of the Fed, presents long-term inflation risks and lowers the value of the dollar.

She cited instances of political capture of the monetary authority in different countries, including Germany, Hungary, Argentina and Turkey.

“The names change, but the story is the same,” she wrote.

As Assiduous Reader niagara points out in a comment, the US curve has steepened considerably since Trump took office, which is consistent with the market resisting a potential premature or overdone monetary easing.

PerpetualDiscounts now yield 5.69%, equivalent to 7.40% interest at the standard conversion factor of 1.3x. Long corporates continue to yield 5.03%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now 235bp, a slight (and perhaps spurious) narrowing from the 240bp reported August 20.

Lisa Cook is fighting Trump’s attempt to fire her:

Federal Reserve Governor Lisa Cook’s attorney, Abbe Lowell, announced on Tuesday he is filing a lawsuit to challenge President Donald Trump’s attempt to fire her on Monday evening.

“President Trump has no authority to remove Federal Reserve Governor Lisa Cook. His attempt to fire her, based solely on a referral letter, lacks any factual or legal basis. We will be filing a lawsuit challenging this illegal action,” he said in a statement sent to CNN.

Matt Egan at CNN puts Trump in dubious company:

In 1970, President Richard Nixon tapped Arthur Burns, one of his top economic aides, to lead the Fed.

Even though Burns was known as an inflation fighter, historians say Nixon successfully pressured his handpicked Fed chief to juice the economy with low rates to boost his political fortunes.

A review of telephone conversations “clearly reveals that President Nixon pressured Burns, both directly and indirectly…to engage in expansionary monetary policies prior to the 1972 election,” according to a 2006 paper published in the Journal of Economic Perspectives. “Richard Nixon demanded and Arthur Burns supplied an expansionary monetary policy and a growing economy in the run-up to the 1972 election.”
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More recently, Turkish President Tayyip Erdogan fired his country’s central bank chief in 2021 and installed a loyalist. As the Turkish central bank slashed interest rates at Erdogan’s behest, the Turkish lira crashed and inflation blew past 80%.

To my surprise, markets yawned at the impending tussle:

Canada’s main stock index closed up on Tuesday as strong bank earnings and higher gold prices helped boost shares, even as oil prices slid and concerns deepened about the U.S. Federal Reserve’s independence. Wall Street also ended higher.
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The index also benefited from gold prices, which rose to a more than two-week high as investors took refuge in safe-haven yellow metal after fears that U.S. President Donald Trump would infringe on the independence of the Federal Reserve.

Trump fired Fed Governor Lisa Cook over alleged improprieties in obtaining mortgage loans. Spot gold was trading at 3,390.52 per ounce, up 0.71% at 4:13 p.m. ET, which lifted the mining-companies-tracker materials index, with almost 12.5% weight on the TSX, up 1.41% at market close.
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The U.S. two-year Treasury yield, which closely tracks expectations for Fed action, slipped to 3.68% from 3.73% late Monday.