Cash pools, Fed rev-repos, and the stagnationist future, part 1

Zoltan Pozsar, in a new study published by the US Treasury Department’s Office of Financial Research, has developed an intriguing new framework for understanding the interaction between global finance and macroeconomic trends.

It includes important sections about the potentially large implications of the Fed’s new reverse repo facility and the relationship between stagnationist trends and the financial markets. Read more

US inflation has climbed. Now what?

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Problems. You have them. Lucy solves them.

Camp Alphaville’s afternoon lineup includes Lucy Kellaway joining me on stage for a free-wheeling chat about life in the workplace.

The plan is to set aside some time during the event to host a live version of her advice column, which means that we need some problems for her to solve — your problems, dear readers. Read more

The Closer


- A new book on robots and the economy featuring our very own Izzy Kaminska! Read more

Video: FOMC reaction

With the FT’s US markets editor Mike Mackenzie:

Used to embed a single clip on blog posts.

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Macro Live, FOMC presser edition

Live markets commentary from 

Reminder: US Macro Live, FOMC presser edition

Yep, US Macro Live returns to provide live coverage of the Janet Yellen presser.

Join us in the usual digs at 2:25 EST (7:25 in London) to discuss the FOMC statement for a few minutes before the presser kicks off. Read more

Term premia, the Fed, and finstability, part 2

Should the Fed be unduly concerned by the decline in term premia this year?

Consider some the potential explanations given for the decline in yields: Read more

Term premia, the Fed, and finstability, part 1

Last November, with the end of his tenure nearing, Ben Bernanke discussed an idea that Gavyn Davies refers to as The Separation Principle.

It begins with the simple concept that movements in long-term rates are explained by changes in two components: the term premium and the expected path of short rates. And while the Fed’s asset purchases mainly influence rates through their effects on the former, its forward guidance language works by altering the latter. Read more

Finstability hawkishness and the burden of proof

Given the recent proliferation of debate about monetary policy and the fall in volatility — among central bank officials and the economics commentariat both — it might be worth revisiting first principles.

Start with the obvious point that the Fed’s monetary policy mandate says nothing about financial stability, which therefore must be a secondary variable. It matters only inasmuch as it affects the Fed’s ability to satisfy its mandates of price stability and full employment. This is mostly undisputed but not often stated plainly. Read more

The growth of US student loan debt: causes and consequences

The chart from Goldman economists breaks down the various causes behind the rapid expansion of student loan growth in the past decade. As you can see, both rising tuition and a higher share of students borrowing have contributed just as much as higher student enrollment. Read more

The recovery of global goods demand

This nifty chart from a recent Credit Suisse note shows the rejuvenated growth in global goods demand since roughly the start of 2013, a favourable sign for industrial production. Read more

Video: volatility, markets and the Fed

Here’s a short chat with the great Tracy Alloway, finance correspondent and FT Alphaville alum. Read more

Routinous, ruinous

The chart comes via this recent note from the Dallas Fed, and the theme will be familiar to those who have read the earlier work of Frank Levy, Richard Murname, and David Autor.

Although the share of routine jobs in the labour force has been declining since the 1970s, the dramatic permanent losses started after the recession of the early 1990s. A similar trend can be observed in the manufacturing sector, which obviously would have hosted many of these jobs. Read more

Cars on the road in the US are still pretty old

Chart from the BLS, which adds:

The average age of households’ cars, vans, sport utility vehicles (SUVs), and trucks increased from 10.1 years in 2007 to just over 11.3 years in 2012. Chart 2 shows that the share of newer vehicles (those manufactured less than 5 years earlier than the year shown) dropped by nearly 33 percent from 2007 to 2012 while the share of vehicles 11–20 years old grew by 25 percent over the same timeframe. Read more

Charts du jour: fiscal drag per capita

Chart I-5 shows that the government sector has subtracted 0.4 percentage points from per capita real GDP growth over the past three years; whereas in a typical recovery, government spending on goods and services would have added 0.5 points to growth.

Video: interview with Mian & Sufi on “House of Debt”, and a review

This is the uncut, extended version of my interview with Atif Mian and Amir Sufi, a shorter version of which appeared on

And below is a time guide, followed by some brief thoughts on their excellent new book, “House of Debt”. Read more

Video: five reasons the young have it tough

We continue trying out new formats for Alphaville videos. Let us know what you think.

Below is a list of studies and media pieces, some of which are referenced in the video, about young people in the US. Beneath each entry are quotes, facts and other points of analysis that we wanted to highlight:

Are Recent College Graduates Finding Good Jobs?  Read more

The Closer


- The return of moderationRead more

FOMC minutes: rev-repo facility working how it should

Robin Harding summarises the discussion about the Fed’s exit strategy revealed in the FOMC minutes from the April meeting, when the committee also talked about the need for additional forward guidance.

The takeaway is that some participants think it would be a good idea for Janet Yellen to clarify the language, introduced to the FOMC statement in March, that interest rates are expected to stay below normal even after inflation and unemployment return to near-mandate levels. Some participants also want more guidance on how long the maturing Treasuries on its balance sheet will be rolled over and the principal payments on MBS will be reinvested. Read more

One reason the US auto market has bounced back faster than housing

It’s only one of several reasons, of course, as housing is a much bigger source of wealth and collateral for households and was obviously devastated in the crisis (hurting the middle class and poorest Americans the hardest). Read more

The problem of dealer balance sheet elasticity

The chart above from a Credit Suisse note, showing that trading assets at the ten biggest US and European banks (measured by such assets) are now 17 per cent smaller than at their 2010 peak, shouldn’t come as a shock to anyone who followed the “FICC revenues suck” storyline from Q1 bank earnings season. Rates trading assets in particular have fallen precipitously in that time, by roughly a third, or $200bn.

But the strategists also provide an assessment of dealer balance sheet elasticity in a corporate bond selloff. Read more

Activists: coming soon to a country near you

A few charts of interest pulled from a new Deutsche Bank note on activism with the familiar-sounding title “Battle for the boardroom”…

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US taxes and inequality

Included in CEA chair Jason Furman’s thoughtful speech on inequality was this assessment of US tax policy in the past five years:

Since 2009 the United States has made three sets of permanent (or semi-permanent) changes to its tax code relative to the policies that were previously in effect:

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US labour market slack: the difficulty with “structural” vs “cyclical” labels

The uncertainty about the extent of US labour market slack continues, and last week’s employment situation report certainly didn’t clarify the issue. Read more

“The urge to merge meets the dash for trash”

That’s the title of the latest from Matt King, one of the credit strategists we dubbed “bearullish” earlier this year.

King is short-term bullish on credit but, in his own words, “for all the wrong reasons”. He believes that the combination of the remarkably supportive liquidity environment of the past few years and the lack of better alternatives will remain in place for a while — even as credit fundamentals keep deteriorating and valuations become less and less attractive. Read more

The Fed’s future management of short rates

As expected, this week’s FOMC statement was mostly a snoozer, but the notification of a closed-door meeting on Tuesday to discuss “medium-term monetary policy issues” at least gave Fed-watchers something to ponder.

We might need to wait for the minutes before discovering the purpose of the meeting, but one reasonable guess is that it was to further discuss the Fed’s eventual exit plan, a favourite FT Alphaville topic. Read more

US payrolls preview

As of this morning, the consensus expectation for today’s employment situation report in the US was for a 215,000 gain in payrolls a decline in the unemployment rate to 6.6 per cent (from 6.7).

Given the ongoing debate about labour market slack, the figures for average hourly earnings and the length of the workweek are also important. Read more

Video: manufacturing, construction, and the US labour market

We continue tinkering with video ideas. This one is a tl;dr version of a long earlier post on the US construction and manufacturing sectors.

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The London 6am Cut

Ukraine PM warns of ‘most dangerous 10 days’: “Ukraine’s interim prime minister said on Thursday his country was entering its “most dangerous 10 days” since independence in 1991 and was struggling to counter pro-Russian separatists on the verge of taking over the industrialised eastern heartland. Arseniy Yatseniuk, in an interview with the Financial Times, accused Moscow of plotting to foment more clashes during the May Day holidays when nostalgia for Soviet victories and achievements tends to peak.” (Financial Times)

Third Point puts pressure on Dow Chemical: “Third Point, the hedge fund led by activist investor Daniel Loeb, has raised the pressure on Dow Chemical to improve shareholder returns, setting out a detailed critique of the company’s strategy. In a letter sent to its own investors on Thursday, Third Point said that Dow had taken some “shareholder-friendly actions”, but had still failed to address concerns that it was “under-earning its potential in its petrochemical businesses”.” (Financial TimesRead more