Baker Market Updates: Lunch with Lester

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Lunch with Lester - Week in Review is The Baker Group’s Friday newsletter that provides community bankers with an accurate recap of the week’s economic developments. Authored by our seasoned Associate Partner Lester Murray, this insightful publication tracks Federal Reserve policy and provides useful credit market updates including: Weekly Economic Calendar; Fed Fund Futures; Treasury Yield Curve; Agency Spreads; MBS Spreads; Municipal Spreads; MBS Prepayments; and FHLB Advance Rates. 


February 15, 2019

While stopping short of declaring an emergency, Federal Reserve Governor Lael Brainard disclosed yesterday that she favors putting an end to the central bank’s process of balance sheet reduction sometime this year. The normalization exercise began in late 2017 and since that time, the combination of partial reinvestment cessation and carbohydrate reduction has trimmed the balance sheet down to a svelte $4 trillion from its post-crisis peak of around $4.5 trillion. Read more.

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February 8, 2019

With apologies to both William Shakespeare and John Steinbeck, now is the winter of our discontent; at least our economic discontent. Earlier this week, Janet Yellen mused that the central bank’s next rate move could well be a cut and not a hike. Jim Bullard, President of the St. Louis Fed, told reporters yesterday that the Fed’s last rate hike may have pushed the policy rate into “a restrictive setting” and cautioned “We are putting downward pressure rather than upward pressure on inflation.” Jerome, are you listening? Read more.

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February 1, 2019

Jerome Powell has figured out why the caged bird sings. Interest rates are high enough; maybe too high. And the fearful trill of the doves on his committee is finally being heard. Until this morning’s Jobs report, the week’s big news centered around the FOMC’s first meeting of the year. After December’s fourth rate hike of 2018, ill-advised in the minds of many, investors were looking for signs that our central bankers were, as advertised, actually being driven by the data. They got more than hints. Read more.

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January 25, 2019

We’ve all heard the old saying “What you don’t know can’t hurt you.” Were that true, our state of economic health would be unquestioningly robust. With each passing day of the partial government shutdown (PGS), the list of postponed data reports grows ever longer. This is becoming extremely inconvenient for a data-driven Fed that’s not getting all the data. Until someone turns the lights back on at the Commerce Department, we’re all in the informational dark. The FOMC’s job is tough enough, and with the partial shutdown, the Committee is flying partially blind. Read more.

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January 18, 2019

With a long, holiday weekend awaiting most Americans, prudent travelers might want to reconfirm their reservations before getting on the bus. One never knows when plans might change. But, travel arrangements aren’t the only things subject to sudden revision. It was reported yesterday afternoon that Administration officials were considering the possibility of lifting and/or cutting some of the trade tariffs that have been imposed upon Chinese imports. Read more.

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January 11, 2019

What do a Supreme Court case from 55 years ago and the FOMC have in common? Well, maybe more than one might think. In Jacobellis vs. Ohio, a 1964 lawsuit about a racy movie shown in Cleveland Heights, Justice Potter Stewart got the assignment to write the opinion for the majority. The Court ruled against Ohio and overturned the State’s decision that the film was obscene. Read more.

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January 4, 2019

Even before William Tell stood before an archer’s arrow and had one shot off the top of his head, apples have played a big role in myth, legend, and folklore. An apple even helped Isaac Newton invent gravity. Daughters are the apples of their fathers’ eyes and for sons, the apple doesn’t fall far from the tree. God didn’t make the little green ones, and thankfully, one bad one won’t spoil the whole bunch. Read more.

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December 28, 2018

It may only be the fourth day of Christmas, but it’s the seventh day of the partial government shutdown (PGS). While we all know that Four Calling Birds are the appropriate gift for the former, it’s unclear what is traditionally suitable for the latter. The good news is, the Grand Canyon is open for business, and that includes the gift shop. Read more.

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December 21, 2018

Christmas has a new Grinch, and his name is Jerome. As Chairman of the FOMC, Mr. Powell has gotten a lot of grief since his post-meeting press conference on Wednesday. Does he deserve it? The announcement of the central bank’s ninth quarter-point rate-hike of this cycle should not have been a surprise to anyone, and it wasn’t. So, why did equity markets react like they found a lump of coal in their stockings? Well, it wasn’t so much about what the Fed Chairman did, it’s about what he said. More precisely, it’s what he didn’t say. Read more.

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December 14, 2018

Gift-givers still have eleven shopping days until Christmas, but lawmakers are only left with a week to produce a workable spending bill if a partial government shutdown is to be avoided next Friday. This is just one of several issues for investors to contemplate as the FOMC prepares for its final meeting of the year amid signs of a globalgrowth slowdown and an unclear resolution to the China-U.S. trade war; the tone of which seems to vacillate between positive and negative on an hourly basis. Read more.

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December 7, 2018

When the outcomes produced by reality fall short of anticipated results, which side of the desired equation is off? Reality tends to be immutable and probably undeserving of any blame. On the other hand, forecasting economic data is always dodgy and this morning’s monthly Jobs report from the Bureau of Labor Statistics (BLS) serves as a reminder of just how dodgy. The 155k gain in Non-Farm Payrolls was well short of the 200k that market surveyors were looking for. The 3.7% Unemployment Rate remained unchanged, as did the 62.9% Labor Force Participation Rate. Read more.

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November 30, 2018

There was a time in the industrial evolution of America when Wall Street was guided by an ironclad axiom: As General Motors goes, so goes the nation. The Honda Accord, in conjunction with a few other things, long ago invalidated that dogmatic domestic dictum. Good thing, too, because GM’s announcement this week that it will be firing over 14k workers might just be a sign that things aren’t going so well for the tax-payer subsidized auto maker. Read more.

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November 23, 2018

“Over the river and through the woods” would hardly describe the route taken by some financial markets this week. But, “through the guardrail and into the ravine” does not conjure up a cheerful holiday image; despite its being closer to the truth. Maybe some of these equity investors just can’t handle the truth. Maybe they need someone on that wall; that wall of worry that continues to darken economic prospects that, until very recently, seemed so bright. Read more.

November 16, 2018

As the week’s caravan of economic data reached investors’ radars this week, some were expecting to see some evidence of the long-awaited inflation invasion. Has it arrived? According to the Bureau of Labor Statistics (BLS), inflation measures are on the rise, but those measures still fall a little short of reaching invasion status. In October, the Consumer Price Index without food and energy rose by 0.2% and that pretty much matched market expectations. It also brought the year-over-year rate to 2.1% and that was actually down a tenth from the prior month. Invasion? Not just yet. Read more.

November 9, 2018

If President Trump doesn’t want to take economic advice from Fed Chairman Jerome Powell, maybe he will be more receptive to Jerome’s counsel regarding public relations: don’t fight with reporters at press conferences. Mr. Powell’s next press conference won’t be until December 19th where he will likely be explaining and defending the 9 th rate hike of this cycle. If market participants needed affirmation of that event’s likely occurrence, it was provided to them by the statement that J.P. and his minions issued yesterday upon the completion of the FOMC’s penultimate meeting of the year. Read more.

November 2, 2018

As Americans prepare to give back the daylight they’ve been saving since March, the Bureau of Labor Statistics announced that a lot more of us have a reason to rise and shine come Monday morning. In today’s Employment Report for October, the Bureau of Labor Statistics (BLS) reported that Non-Farm Payrolls increased by a much larger-than-expected 250k. For those that attach significance to the Unemployment Rate, it remained unchanged at 3.7% while the Labor Force Participation Rate recorded a two-tenths rise to 62.9%. That is significant. Read more.