📈 📉 Would You Rather Have Healthy Job Market or Low Inflation?
Happy Sunday!
Pretty big news out of the Fed earlier. Nothing comes out of Jerome Powell’s mouth that isn’t carefully calculated. Any new guidance by the Fed has major impact on markets. Read more below for the spark notes or if you want more detail, click for the full article.
As usual, if you missed our last upload, it’s linked at the bottom of the newsletter!
- Humphrey, Tim & Rickie
Market Report
Powell Ready to Support Job Market, Even if it Means Higher Inflation
With a slight increase in unemployment, the Fed, led by Chair Jerome Powell, is now indicating a readiness to lower rates to prevent a job-cutting cycle, even at the cost of tolerating higher inflation for some time.
This marks a significant shift, as Powell for the first time suggested in a press conference that an unexpected rise in unemployment could lead to a reduction in rates.
Despite official forecasts predicting only a modest uptick in unemployment to 4% by the end of 2024, some economists are alarmed by signs of a more substantial economic slowdown, including significant unemployment increases in states like New York and California, and reduced working hours nationwide.
U.S. Treasury Market Sees Unprecedented Growth
The U.S. Treasury market is experiencing unprecedented growth with annual issuance nearly doubling since the pandemic, reaching a record $23 trillion in 2023. The Treasury market has grown more than 60% to $27 trillion since the end of 2019. It is roughly sixfold larger than before the 2008-09 financial crisis.
Despite the increasing government spending and debt issuance, demand for Treasurys remains strong, driven by a lack of alternatives and significant purchases by hedge funds, money-market funds, and foreign investors.
AI Craze May Lead to Increased Reliance on Traditional Energy
At a recent energy conference hosted by S&P Global, the main theme surprisingly wasn’t oil and gas, but artificial intelligence. The rapid expansion of data centers, essential for AI's growth, is expected to place immense pressure on power grids, potentially complicating the transition to clean energy sources.
Former U.S. Energy Secretary Ernest Moniz and industry leaders highlighted concerns about the feasibility of rapidly scaling up renewable energy production to match demand, suggesting a possible increased reliance on fossil fuels like natural gas, coal, and nuclear power.
Meanwhile, the Biden administration has set a goal to eliminate carbon emissions from the U.S. electricity sector by 2035. John Podesta, the president’s senior advisor on clean energy told reporters that larger AI demands create new challenges in hitting that target.
Hedge Funds Entering the Crypto Space, Goldman Says
Goldman Sachs is witnessing a renewed interest in cryptocurrency markets, not just from individual traders but also from its hedge-fund clients, particularly following the approval of a crypto ETF.
According to Goldman's Asia Pacific head of digital assets, there's been a significant uptick in activities, with clients exploring or becoming active in trading crypto derivatives like Bitcoin and Ether options, as well as futures.