PrefBlog

The Boston Fed has released a working paper by lizabeth Llanes, Jeffrey P. Thompson, and Alice Henriques Volz Do the Rich Really Save More? Answering an Old Question Using the Survey of Consumer Finances with Direct Measures of Lifetime Earnings and an Expanded Wealth Concept:

To address the question of whether the “rich”—typically identified as households with high levels of lifetime income or earnings—save a greater share of their income compared with less affluent households, this paper includes direct measures of lifetime earnings, the full range of assets that low- and middle-income households depend on to finance their retirement, and data that include sufficient samples of households that are in the extreme upper tails of the wealth or income distribution. Specifically, the authors use the 2022 Survey of Consumer Finances (which oversamples high-net-worth households) in combination with direct estimation of lifetime earnings (LE) to explore wealth-to-lifetime-earnings ratios—the cumulative impact of saving over time—across the lifetime earnings distribution. In addition, they use an expanded measure of wealth that includes the asset value of defined benefit pensions and Social Security.
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• As indicated by wealth-to-LE ratios, the rich do indeed save more than households further down the LE distribution. In general, elevated wealth-to-LE ratios are consistently observed only in the top one or two deciles of the lifetime earnings distribution.
• When the analysis includes defined benefit assets, which are excluded from most of the previous research, wealth-to-LE ratios rise even higher in the top half of the LE distribution.
• Adding the asset value of Social Security benefits, however, pulls these ratios up disproportionately across the bottom half of the LE distribution.
• When accumulated capital gains are excluded from the measure of wealth, wealth-to-LE ratios remain elevated in the top decile of LE distribution and are flat over most of the distribution.

TXPR closed at 693.26, up 0.72% on the day. The close was a new 52-week high, smashing the old mark of 689.37 set yesterday. Volume today was 1.14-million, near the median of the past 21 trading days. Today’s run-up was probably due to reinvestment of proceeds from the TD.PF.E redemption.

CPD closed at 13.74, up 0.44% on the day. Volume was 49,350, near the median of the past 21 trading days.

ZPR closed at 12.08, up 0.17% on the day. Volume was 145,110, third-highest of the past 21 trading days.

Five-year Canada yields were down a bit to 2.70%.

The New York Fed published its Household Debt and Credit Report (25Q2):

Household Debt Reaches $18.39 Trillion in the Second Quarter; Auto Loan Originations Increase

Total household debt increased by $185 billion to hit $18.39 trillion in the second quarter, according to the latest Quarterly Report on Household Debt and Credit. Mortgage balances grew by $131 billion and totaled $12.94 trillion at the end of June. Auto loan balances also increased, rising by $13 billion to reach $1.66 trillion. The pace of mortgage originations increased slightly, with $458 billion in newly originated mortgages in the second quarter. HELOC balances rose by $9 billion to $411 billion, representing the thirteenth consecutive quarterly increase. Student loan balances edged up by $7 billion and stood at $1.64 trillion, with student loans seeing another uptick in the rate at which balances moved from current to delinquent due to the resumption of reporting of delinquent student loans. Aggregate delinquency rates remained elevated in the second quarter, with 4.4 percent of outstanding debt in some stage of delinquency.
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Mortgage balances shown on consumer credit reports grew by $131 billion during the second quarter of 2025 and totaled $12.94 trillion at the end of June. Balances on home equity lines of credit (HELOC) rose by $9 billion, the thirteenth consecutive quarterly increase. There is now $411 billion in outstanding HELOC balances, $94 billion above the low reached in the first quarter of 2022. Credit card balances rose by $27 billion during the second quarter and now total $1.21 trillion outstanding and are 5.87% above the level a year ago. Auto loan balances rose by $13 billion, and now stand at $1.66 trillion. Other balances, which include retail cards and consumer finance loans, were roughly unchanged at $540 billion. Student loan balances edged up by $7 billion and now stand at $1.64 trillion. In total, non-housing balances increased by $45 billion, a 0.9% increase from 2025Q1.

The TXPR Price Index set a new 52-week high today of 689.37, beyond the old mark of 688.35 set yesterday.

The TXPR Price Index set a new 52-week high today of 688.35, erasing the old mark of 688.00 set yesterday.

Five-year Canadas were up 12bp to 2.74%, presumably on the perceived hawkish tone of Tiff Macklem’s post rate-announcement comments.

The FOMC loosened policy:

Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up but remained low through August; more recent indicators are consistent with these developments. Inflation has moved up since earlier in the year and 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 and judges that downside risks to employment rose in recent months.

In support of its goals and in light of the shift in the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 3-3/4 to 4 percent. In considering 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 decided to conclude the reduction of its aggregate securities holdings on December 1. 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; Michelle W. Bowman; Susan M. Collins; Lisa D. Cook; Austan D. Goolsbee; Philip N. Jefferson; Alberto G. Musalem; and Christopher J. Waller. Voting against this action were Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 1/2 percentage point at this meeting, and Jeffrey R. Schmid, who preferred no change to the target range for the federal funds rate at this meeting.

Colby Smith of the NYT remarks:

• Lower rates: After another quarter-point cut, interest rates set by the Fed are now below 4 percent for the first time since late 2022. Jerome H. Powell, the Fed’s chair, said today’s reduction moved the Fed’s policy settings closer to a “neutral” level that does not stimulate growth or slow it down. That suggests there may not be that much more scope for the central bank to cut interest rates further.
• Room for debate: This remains a very divided Fed, as evidenced by the fact that two officials cast dissenting votes in opposite directions. One wanted a bigger, half-point cut; another wanted no cut at all. The split stems not only from divergent forecasts about the economy but also risk tolerances around allowing the labor market to weaken or inflation to stay elevated.
• Uncertainty ahead: Mr. Powell made clear that the disagreements extended to the path forward for policy, with a cut at the December meeting not a “foregone conclusion” in light of “strongly differing views about how to proceed.” The Fed chair also said that a lack of official government statistics as a result of the ongoing shutdown could make the central bank more cautious about further cuts.
• Risky choices: Mr. Powell repeatedly emphasized what a challenging situation the Fed was in, reiterating that there was “no risk-free path.” If it keeps cutting to protect the labor market, inflation could get stuck above the Fed’s 2 percent target. If it focuses on getting inflation down, it could cause a more significant increase in unemployment.
• New balance: Mr. Powell also said the Fed was thinking carefully about its balance sheet, which the central bank said it would stop shrinking in December. He said that market strains that have cropped up in the past three weeks have shown that now is the right time to make that change.

PerpetualDiscounts now yield 5.52%, equivalent to 7.18% interest at the standard conversion factor of 1.3x. Long corporates yielded 4.67% on 2025-10-28, and the closing price of ZLC changed from 15.72 on that date to 15.58 on 2025-10-29, a drop of 1.65%. This drop in ZLC price implies an increase in yield of 13bp (BMO does not specify whether their reported “Duration” of 12.44 is Macaulay or Modified; I will assume Modified) to 4.80%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed sharply to 240bp from the 255bp reported October 22.

The TXPR Price Index set a new 52-week high today of 688.00, beating the prior mark of 686.47 set yesterday.

A CNN piece on flagjacking brought to mind a cultural difference between the US and Canada:

[Canadian content creator and author Stewart] Reynolds’ offers a broader overview about the differences between Canadian and American travelers abroad, first with a disclaimer, then with a weather analogy.

“Canada’s got jerks. We’ve got a lot of jerks,” he tells CNN. “But on the whole, I think that Canadians generally try to find the best for the group, whereas Americans are very much for the individual.”

That might mean going to the back of the line instead of trying to find a shortcut, and waiting for their turn. Because Canadians value order, he says.

This characteristic goes a long way to explaining the productivity difference between the US and Canada that is attracting so much media attention lately.

My impression of the difference between US and Canadian business lies largely in how decisions get made. At a Canadian brokerage, for example, if you have a new idea for a product (a derivative, say, or a trading strategy) you’ve got to get the signatures of 10 Executive Vice Presidents before anything can happen – Canada operates by consensus and we wouldn’t want to make a mistake, would we? The US idolizes the Lone Hero. At a US brokerage, if you have a similar idea you go to your boss and if he likes it, then you’ve got X-million in firm capital to get the thing running. The deal is: if it works, you get rich. If it doesn’t work, you get fired. And your boss is hoping you’ll come up with something worth backing, because he has access to 10X-million in firm capital and if there’s one biblical incident that Americans are familiar with, it’s the Parable of the Talents.

On another note, Texas is suing over Tylenol:

Texas Attorney General Ken Paxton has filed a lawsuit against the companies Johnson & Johnson and Kenvue, claiming that they “deceptively” marketed Tylenol to pregnant mothers and that the medication is tied to an increased risk of autism. Kenvue said in a statement that the medication is safe and the company will “vigorously defend” against the claims.

The lawsuit, dated Monday and filed in the District Court of Panola County, Texas, comes about a month after President Donald Trump publicly claimed that the use of Tylenol during pregnancy can be associated with an increased risk of autism in the child, despite decades of evidence that the medication is safe.

“Big Pharma betrayed America by profiting off of pain and pushing pills regardless of the risks. These corporations lied for decades, knowingly endangering millions to line their pockets,” Paxton, the state’s Republican attorney general, who is also running for US Senate, said in a news release Tuesday. “By holding Big Pharma accountable for poisoning our people, we will help Make America Healthy Again.”

The lawsuit claims that Johnson & Johnson and Kenvue violated the Texas Deceptive Trade Practices-Consumer Protection Act because they knew that acetaminophen, the active ingredient in Tylenol, “is dangerous to unborn children and young children” and “they hid this danger and deceptively marketed Tylenol as the only safe painkiller for pregnant women,” according to the lawsuit.

I’m more or less pleased to see this, although it betrays lamentable governance. It will be lots of fun to see this thrashed out in a court of law, where all of the bluster of Trump & Kennedy will be shut down and a judge will be in a position to ask a relatively rare question nowadays: “What evidence do you have for this claim?”. I can just imagine the witnesses for the defence – I’m sure big names in medicine will be lined up for miles to testify on this.