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Starting to think this Jamie Dimon guy might be a pretty good banker. By the end of this week, he’ll have $3 trillion in deposits at a 20% IRR. By next month, he’ll also have another deposition in his personal portfolio.

Meanwhile, J Pow warned Sen. Warren to STFU. EU unemployment had the same message for the ECB.

Let’s dive in.

Economy Heat Check

As of 5/3/2023 market close, unless otherwise stated.

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Expectations Reset: FOMC Fallout

In a shocking turn of events – for the one Credit Suisse banker still remaining at UBS – Fed officials signaled a possible pause in raising interest rates yesterday. Maybe by the time that banker finds two minutes to shower, a pause is actually plausible. Yesterday’s 25 bps hike came as the Fed approved another increase in its benchmark rate to 5% and 5.25% – a 16-year high.

The market wasn’t waiting to hold Powell’s beer. Stocks dropped and US government bonds rallied slightly after the Fed’s unanimous decision. It marks the Fed’s 10th consecutive rate increase aimed at battling inflation.

Fed Chair Jerome Powell indicated that officials would need to see signs of stronger-than-expected growth, hiring and inflation to continue raising rates. Sadly, we couldn’t all afford Econ for Dummies or attend the college that scheduled Econ 101 the same time as Virtue Signaling for Aspiring Senators.

Some politicians felt the Fed should have held rates steady to see how the economy responds to banking stresses. Many also faulted the Fed for being slow to remove stimulus after Congress approved more than $2T in spending at the end of 2020, when inflation first surged.

Political part over now. But, they’re not the only ones who won’t be attending Powell’s post-FOMC party. Some investors have also been at odds with the Fed during the past nine months over how high rates might rise and how long rates will stay at those higher levels to ensure inflation declines.

Investors have often anticipated a speedier drop in inflation and rates, in part because they expect rate increases to tip the economy into recession. Those expectations have led long-term bond yields to decline, potentially making it harder for the Fed to restrain the economy with higher short-term rates.

If investors and Powell see eye-to-eye on one thing right now, it’s 2%. For the Fed, that’s for inflation over time. For investors, it’s their max ROI in this economy.

Still to Come: Unemployment Report

In case you’ve been trapped in fear-baiting FinTwit, hiring remains robust. Don’t expect tomorrow’s unemployment report to tell much of a different story. Employers added nearly 345,000 jobs a month on average in the first quarter.

That being said, some worry steady job growth and brisk wage gains could sustain higher inflation. At the same time, though, unemployment due to permanent layoffs is rising. Its share of total unemployment is at the highest level since 2021.

So, while unemployment remains exceptionally low by historical standards, the mix is getting worse. So far, the increase is not enough to move the meter on overall unemployment. It has probably added just 0.10-0.15 bps to the unemployment rate. But will it continue?

Powell isn’t the only one pressed by higher unemployment and inflation. They’re also the primary factors for foreclosure filings. New data from last week showed US foreclosure filings jumped 22% in the first quarter compared to last year. Foreclosure activity in the US has increased for 23 straight months. That means housing affordability is now below 2008 levels.

April’s Employment Situation drops tomorrow, May 5th at 8:30 a.m. (ET). So plan to kick off Cinco de Drinko a bit earlier this year.

Meme Bank

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