The third episode of Alpha Trader features hosts Aaron Task and Stephen Alpher talking CME Group Chief Economist Blu Putnam, with topics moving from the Fed, to Brexit, and then back to these shores and the U.S. economy.
The Fed is surely cutting rates this week, says Putnam, but the FOMC is quite divided - some are arguing that rate cuts aren't needed, and others are pushing for an even faster pace of monetary ease. He's going to be very interested in how Fed Chair Jay Powell navigates these differences at his post-meeting press conference.
The Fed's new bill-purchase facility isn't necessarily normal open-market operations plumbing, says Putnam, but neither is it a new QE program. There was no doubt some stress in the repo markets earlier this month, but Putnam reminds that volatility in overnight rates was way higher in the 90s, so perhaps today's market participants have just been put to sleep by the past years' calm conditions. As for the QE question, Putnam says there's a big difference between what the Fed is doing today and its program of a few years ago: QE involved the purchase of vast amounts of long-dated paper, while the current actions involve only very short maturities.
Moving across the pond, Putnam says Brexit is going to happen in one form or another, but what we're seeing is a lot of jockeying about who leads the U.K going forward. The Tories are divided and Labour is divided - the question for both is how they can play Brexit and then come out in power next year and beyond.
Ahead of the talk with Putnam, Task and Alpher continue to scratch their heads about how rate cuts are even part of the conversation given a 3.5% unemployment rate. Is President Trump really influencing the Fed, or is Jay Powell's "mid-cycle adjustment" just an attempt at what in The Maestro's days was called the "soft landing?"
Earnings season is well upon us, and Task notes that larger amounts of S&P 500 companies than normal are topping estimates. Is it good news, or just a good job by managements of massaging expectations? And finally that nagging question - when does Amazon (AMZN) stop being a big grower and start paying a dividend?
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