PrefBlog

It’s a red-letter day! A Trump appointee has said something sensible!

Hassett, in subsequent interview on Fox News Sunday, said that if he ran the BLS and had “the biggest downward revision in 50 years, I would have a really, really detailed report explaining why it happened.”

Imagine that! Wanting a thorough understanding of how the revision happened before taking tough-guy action! Will wonders never cease?

Of course, this guy Hassett has a history:

I started doing some digging on Hassett after lunch and discovered that he had coauthored a book called Dow 36,000.

Written in 1999, Dow 36,000 argued that for structural reasons, the stock market was wildly undervalued and was poised to take off like a rocket. Hassett and his coauthor, James K. Glassman, said that 1999 represented a unique moment during which stocks were, as an asset class, undervalued by something like 350 percent:

[The s]ingle most important fact about stocks at the dawn of the twenty-first century: They are cheap. . . . If you are worried about missing the market’s big move upward, you will discover that it is not too late. Stocks are now in the midst of a one-time-only rise to much higher ground—to the neighborhood of 36,000 on the Dow Jones industrial average.

You may remember 1999 as the eve of the dotcom bust. Rather than being poised to make a big move upward, the stock market was at the top of an irrationally exuberant5 bubble.

When Dow 36,000 was published, the Dow Industrial Average was 10,273. That was October. Three months later the bubble popped. By October 2002 the Dow was 7,286.

So, take it as you will. Hassett is a leading contender for Fed chairman, God help us.

Speaking of jobs numbers, Canada’s July number was pretty awful:

Canadian job seekers and young workers are struggling through the dog days of summer even as the labour market shows limited strain from U.S. tariffs.

Statistics Canada on Friday reported 41,000 job losses last month, while economists had expected a slight gain.

The unemployment rate was unchanged at 6.9 per cent in July as StatCan said the number of job seekers held steady month-to-month.

The economy lost 51,000 full-time positions in July, and the bulk of the losses were in the private sector. The information, culture and recreation sector led the drop in employment, followed by construction.
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Average hourly wages meanwhile rose 3.3 per cent on an annual basis in July, up a tick from June.

Darcy Keith reports:

Money markets are pricing in modestly higher odds that the Bank of Canada will cut interest rates at its upcoming policy meetings this year following surprisingly weak Canadian employment data this morning.
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Here’s how implied probabilities of future interest rate moves stood in swaps markets moments after the 830 am ET data, according to LSEG data. The overnight rate now resides at 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-release Money Market

Post-release Money Market

Today’s Survey of Consumer Expectations shows assertions of slowing inflation are not universally accepted:

July Survey: Inflation Expectations Up at Short- and Longer-Term Horizons, Unchanged at Medium-Term

Median inflation expectations increased to 3.1 percent from 3.0 percent at the one-year-ahead horizon and to 2.9 percent from 2.6 percent at the five-year-ahead horizon. Expectations remained steady at 3.0 percent at the three-year-ahead horizon.

Households’ perceptions about their current financial situation compared to a year ago and expectations about their year-ahead financial situation both improved. Smaller shares of respondents reported that their households are worse off than a year ago or are expecting to be worse off a year from now.

The mean expected probability that the U.S. unemployment rate will be higher one year from now dropped 2.3 percentage points (ppt) to 37.4 percent, the lowest reading since January 2025. However, the mean perceived probability of losing one’s job in the next twelve months increased by 0.4 ppt to 14.4 percent.

Perceptions of credit access compared to a year ago deteriorated slightly, with the net share of households reporting that it is easier versus harder to get credit decreasing. Conversely, expectations for future credit availability improved, with the net share of respondents expecting it to be easier versus harder to obtain credit a year from now increasing slightly.

For more details:
Press Release: Inflation Expectations Tick Up; Consumers More Optimistic about Taxes and Their Financial Situations

PerpetualDiscounts now yield 5.74%, equivalent to 7.46% interest at the standard conversion factor of 1.3x. Long corporates now yield 4.89%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now 255bp, unchanged from that reported July 30.

TXPR closed at 677.46, down 0.52% on the day. Volume today was 1.17-million, well below the median of the past 21 trading days.

CPD closed at 13.43, down 0.44% on the day. Volume was 35,450, below the median of the past 21 trading days.

ZPR closed at 11.81, down 0.59% on the day. Volume was 102,240, second-highest of the past 21 trading days.

Five-year Canada yields were down 8bp to 2.94%.

Equities got whacked:

Stocks suffered heavy losses Friday and shorter-term U.S. Treasury yields plunged the most in two years after an unexpectedly weak jobs report shattered investors’ confidence in the strength of the American economy as historic tariffs were imposed against several trading partners.
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Money markets are now putting odds of a quarter-point cut by the Federal Reserve at around 85 per cent, from just under 40 per cent a day earlier, according to data from CME FedWatch. Rate futures are now pricing in more than 50 basis points of easing over the course of this year.
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The Dow Jones Industrial Average fell 542.40 points, or 1.23 per cent, to 43,588.58, the S&P 500 lost 101.38 points, or 1.60 per cent, to 6,238.01 and the Nasdaq Composite lost 472.32 points, or 2.24 per cent, to 20,650.13.

For the week, the S&P 500 fell 2.36 per cent, the Nasdaq declined 2.17 per cent, and the Dow fell 2.92 per cent.
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The S&P/TSX Composite Index ended down 239.35 points, or 0.9 per cent, at 27,020.43, extending its pullback from a record closing high on Tuesday. For the week, the TSX was down 1.7 per cent.

Canadian data was also downbeat Friday. Canada’s manufacturing sector contracted for a sixth straight month in July as tariffs undercut trade with the U.S. and spurred firms to reduce inventory as well as staffing levels.

All ten major sectors on the TSX ended lower, led by a 2.4-per-cent decline for technology.

With all that, today’s fall in TXPR basically offsets its 45bp rise yesterday, July 31 – and much of the movement may be ascribed to reinvestment of the CM.PR.Q and TD.PF.D redemption money on July 31 and subsequent snap-back.

This is a day late – sorry about that!

The US jobs number disappointed yesterday:

Employers continued to create jobs but pulled back on hiring, a sign that more businesses are putting expansion plans on hold as they deal with economic uncertainty created by President Trump.

The economy added 73,000 jobs last month, the Labor Department reported on Friday, lower than economists’ expectations. The unemployment rate slightly rose to 4.2 percent, up from 4.1 percent the month before.

In a sign that the labor market may not have been as robust as it seemed earlier this year, job gains from the previous two months were also revised down by a total of 258,000, an unusually high number.
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Wages continued to grow in July. Average hourly earnings climbed 0.3 percent from the prior month and 3.9 percent over the year.

The disappointment infuriated the WhackADoodle:

President Donald Trump has fired Dr. Erika McEntarfer, the commissioner of the Bureau of Labor Statistics, whom he accused, without evidence, of manipulating the monthly jobs reports for “political purposes.”
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“In my opinion, today’s Jobs Numbers were RIGGED in order to make the Republicans, and ME, look bad,” Trump said in a Truth Social post.
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Trump said McEntarfer “faked” the jobs numbers before the election to try to boost former Vice President Kamala Harris’ chances in the 2024 presidential election.

Firing the bearer of bad news is the most clear-cut evidence of bad management I can imagine. But I am leaning towards the idea that the objective is to undermine confidence in the American government:

All of this badgering coincides with what already appears to be a long-term decline in the trust for the Fed. For now, inflation expectations remain reasonable, and Mr. Trump has backed away from firing Mr. Powell outright. But the far-flung consequences of undermining people’s belief in the central bank is that they may decide they no longer value its independence. It is this weakening of that value that may be Trump’s true legacy on the U.S. monetary system, which, if it persists, will have far more severe consequences than the soundbites alone.

To the extent that this succeeds, the influence of American oligarchs will be enhanced. Too conspiratorial? Perhaps. But what other explanation is there?

US inflation was announced today:

US consumers continued to spend in June, powering the economy in the process, despite tariff-related price hikes becoming more present on store shelves and online.
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The Personal Consumption Expenditures price index — the inflation gauge the Federal Reserve uses for its 2% target rate — rose 0.3% on a monthly basis, which lifted the annual rate to 2.6%, the highest since February.

Economists were expecting PCE to rise 0.3% from 0.2% in May and accelerate on an annual basis to 2.5% from the initially reported 2.3% increase (May’s annual inflation rate was revised upward to 2.4% in Thursday’s report).

The PCE price index was expected to heat up slightly in part because of rising gas prices, which had been falling for much of the year, as well as pricier goods from businesses passing along tariff-related costs to consumers.

That was indeed the case, according to Thursday’s report: Energy prices shot up 0.9% after falling 1% the month before. Goods prices rose 0.4%, the highest monthly rate since January (when prices bumped higher after holiday season discounts).

Excluding energy and food, which tend to be quite volatile, the “core” PCE index showed price hikes picked up speed in June, rising 0.3% from May (the fastest gain in four months), and holding at an annual rate of 2.8%

The TXPR price index set a new 52-week high today of 681.03 (the closing value), outpacing the 677.99 mark set yesterday. Readers who are not quite Assiduous enough might think that July has been a humdinger for performance, given the frequent new highs, but most of the improvements have been microscopic. The price index is up only 2.83% on the month – a good month, certainly, but not the hellzapoppin’ barn burner that the unwary might have been led to suspect.

The Fed stood pat:

Although swings in net exports continue to affect the data, recent indicators suggest that growth of economic activity moderated in the first half of the year. The unemployment rate remains low, and labor market conditions remain solid. Inflation remains somewhat elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Susan M. Collins; Lisa D. Cook; Austan D. Goolsbee; Philip N. Jefferson; Alberto G. Musalem; and Jeffrey R. Schmid. Voting against this action were Michelle W. Bowman and Christopher J. Waller, who preferred to lower the target range for the federal funds rate by 1/4 percentage point at this meeting. Absent and not voting was Adriana D. Kugler.

The newspapers are full of references to:

There were some signs of splits in the Fed’s ranks: Governors Christopher Waller and Michelle Bowman voted to reduce borrowing costs, while 9 officials, including Powell, favoured standing pat. It is the first time in more than three decades that two of the seven Washington-based governors have dissented.

Waller and Bowman will have arguable reasons for their dissent, but such things are always arguable; the dissent is tainted due to suspicions that they are merely pandering to the idiot in chief:

Just two weeks after President Donald Trump sent a handwritten letter to Powell demanding lower interest rates, Russell Vought, Trump’s director of the Office of Management and Budget (OMB), accused Powell of breaking the law by failing to comply with government oversight regulations and lying to Congress about details of an approximately $2.5 billion planned renovation of the Fed’s headquarters.

“The President is extremely troubled by your management of the Federal Reserve System,” Vought wrote in a letter he posted to social media Thursday. “Instead of attempting to right the Fed’s fiscal ship, you have plowed ahead with an ostentatious overhaul of your Washington D.C. headquarters.”

For months, Trump has berated Powell, whom he appointed during his first term, and called him insulting names. The president has lately taken to calling Powell by the nickname “Too Late” for failing to recognize the 2022 inflation crisis fast enough and failing to slash interest rates as inflation has cooled down. Earlier this month, Trump suggested that Powell should resign in a social media post.

Canada has similar idiots, but similarly ignored them:

The Bank of Canada today maintained its target for the overnight rate at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70%.

While some elements of US trade policy have started to become more concrete in recent weeks, trade negotiations are fluid, threats of new sectoral tariffs continue, and US trade actions remain unpredictable. Against this backdrop, the July Monetary Policy Report (MPR) does not present conventional base case projections for GDP growth and inflation in Canada and globally. Instead, it presents a current tariff scenario based on tariffs in place or agreed as of July 27, and two alternative scenarios—one with an escalation and another with a de-escalation of tariffs.

While US tariffs have created volatility in global trade, the global economy has been reasonably resilient. In the United States, the pace of growth moderated in the first half of 2025, but the labour market has remained solid. US CPI inflation ticked up in June with some evidence that tariffs are starting to be passed on to consumer prices. The euro area economy grew modestly in the first half of the year. In China, the decline in exports to the United States has been largely offset by an increase in exports to the rest of the world. Global oil prices are close to their levels in April despite some volatility. Global equity markets have risen, and corporate credit spreads have narrowed. Longer-term government bond yields have moved up. Canada’s exchange rate has appreciated against a broadly weaker US dollar.

The current tariff scenario has global growth slowing modestly to around 2½% by the end of 2025 before returning to around 3% over 2026 and 2027.

In Canada, US tariffs are disrupting trade but overall, the economy is showing some resilience so far. After robust growth in the first quarter of 2025 due to a pull-forward in exports to get ahead of tariffs, GDP likely declined by about 1.5% in the second quarter. This contraction is mostly due to a sharp reversal in exports following the pull-forward, as well as lower US demand for Canadian goods due to tariffs. Growth in business and household spending is being restrained by uncertainty. Labour market conditions have weakened in sectors affected by trade, but employment has held up in other parts of the economy. The unemployment rate has moved up gradually since the beginning of the year to 6.9% in June and wage growth has continued to ease. A number of economic indicators suggest excess supply in the economy has increased since January.

In the current tariff scenario, after contracting in the second quarter, GDP growth picks up to about 1% in the second half of this year as exports stabilize and household spending increases gradually. In this scenario, economic slack persists in 2026 and diminishes as growth picks up to close to 2% in 2027. In the de-escalation scenario, economic growth rebounds faster, while in the escalation scenario, the economy contracts through the rest of this year.

CPI inflation was 1.9% in June, up slightly from the previous month. Excluding taxes, inflation rose to 2.5% in June, up from around 2% in the second half of last year. This largely reflects an increase in non-energy goods prices. High shelter price inflation remains the main contributor to overall inflation, but it continues to ease. Based on a range of indicators, underlying inflation is assessed to be around 2½%.

In the current tariff scenario, total inflation stays close to 2% over the scenario horizon as the upward and downward pressures on inflation roughly offset. There are risks around this inflation scenario. As the alternative scenarios illustrate, lower tariffs would reduce the direct upward pressure on inflation and higher tariffs would increase it. In addition, many businesses are reporting costs related to sourcing new suppliers and developing new markets. These costs could add upward pressure to consumer prices.

With still high uncertainty, the Canadian economy showing some resilience, and ongoing pressures on underlying inflation, Governing Council decided to hold the policy interest rate unchanged. We will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs related to tariffs and the reconfiguration of trade. If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate.

Governing Council is proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy. These include: the extent to which higher US tariffs reduce demand for Canadian exports; how much this spills over into business investment, employment and household spending; how much and how quickly cost increases from tariffs and trade disruptions are passed on to consumer prices; and how inflation expectations evolve.

We are focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval. We will support economic growth while ensuring inflation remains well controlled.

Every day I get more astonished that Social Security isn’t a gigantic issue in the States. It’s going broke – in about 10 years it won’t be able to pay its obligations, as disbursements outpace contributions and the buffer is running out. And yet, nobody seems to care. I don’t understand why the Democrats aren’t banging this drum at every opportunity – it might be because any solution will necessarily involve hikes in the contribution rate and nobody wants to be the bearer of bad news, but are they all really that craven? Perhaps Bessent’s remarks represent an attempt to set the foundations for a political defence:

Treasury Secretary Scott Bessent on Wednesday likened the Trump accounts created by Republicans’ massive new domestic policy law to “a backdoor for privatizing Social Security.” Democrats are already launching political attacks.

Bessent was discussing the Trump accounts at a Breitbart policy panel. The federal government will contribute $1,000 into these new tax-deferred investment accounts for US citizen children born between 2025 and 2028, while parents and others can contribute up to $5,000 annually. The funds are intended to be used for higher education, buying a home or starting a small business.

The accounts can also be used to help Americans better understand investing and serve as a way to save for retirement, Bessent said. Then he threw out a comment that had Democrats immediately up in arms.

“In a way, it is a backdoor for privatizing Social Security,” he said. “Social Security is a defined benefit plan paid out. To the extent that if, all of a sudden, these accounts grow and you have in the hundreds of thousands of dollars for your retirement, then that’s a game changer, too.”

There was some mock outrage, but it will be noted that no actual solution was offered by the Dems:

“Donald Trump’s Treasury Secretary Scott Bessent just said the quiet part out loud: The administration is scheming to privatize Social Security,” Tim Hogan, the Democratic National Committee’s senior adviser for messaging, mobilization and strategy, said in a statement. “Trump is now coming after American seniors with a ‘backdoor’ scam to take away the benefits they earned.”
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“Republicans’ ultimate goal is to privatize Social Security, and there isn’t a backdoor they won’t try to make Wall Street’s dream a reality,” Neal said in a statement. “For everyone else though, it’s yet another warning sign that they cannot be trusted to safeguard the program millions rely on and have paid into over a lifetime of work.”

Current proposals are simply a joke:

Cassidy and Kaine outlined their proposal last week in a Washington Post op-ed, describing a new $1.5 trillion investment fund separate from the current Social Security Trust Fund. The new fund would be structured as a sovereign wealth fund, similar to those used by other countries or the U.S. government’s own Thrift Savings Plan.

Instead of relying only on payroll taxes and low-return government bonds, this fund would be invested in a mix of stocks, bonds, and other assets.

The goal? Generate higher long-term returns to help close the projected funding gap without cutting benefits.

According to the senators, the fund would be given 75 years to grow. During that time, the U.S. Treasury would continue to pay Social Security benefits and would later be repaid by the fund once it matures.

PerpetualDiscounts now yield 5.79%, equivalent to 7.53% interest at the standard conversion factor of 1.3x. Long corporates now yield 4.96%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now 255bp, a slight (and perhaps spurious) widening from the 250bp reported July 23.