- The Federal Reserve, or “the Fed,” is the central banking system of the US.
- The purpose of the Federal Reserve is to regulate banks, manage the country’s money supply, and implement monetary policy.
- The Federal Reserve System consists of three entities: The Federal Reserve Board of Governors, 12 regional banks, and the Federal Open Market Committee (FOMC).
To understand the Fed you need to:
- understand their role model
- have the relative economic data – data which are obtained from processing but which are not supplied raw as of 2023 July
1 – The reference model
It is the classic model – the increase in the money supply generates pressure on prices and contributes to the rise in inflation
To limit this effect, the rise in interest rates leads to a reduction in the money supply on prices - higher costs for shelters (mortgages loans and consumer credit)
- bring excess private liquidity in real terms to short-term investments in Bills (in any case, taking away the money supply from the Banks which are forced to resurrect the issue of new mortgages)
2 – Data highlighting work pressure
2a – ratio open position unemployed –
S&P500 open positions/unemployed (BLS) June 26 1.54
This figure should be read with caution because many open positions (high tech) cannot currently be filled
It is a very high figure which indicates a very hot labor market – normal is 0.70 – in an all time low situation of the unemployment rate at 3.6%
2b – the most important figure – the weekly earnings which represents the initial impact monetary mass
Let’s look at the data – Total private nopharm – june 23 - 2ba – MONTH – Y/Y single worker in real terms – all employees and nonsupervisory
all employees +0.80% Y/Y
non-supervisory +0.86% Y/Y
it is the first positive month in reals since May 21
— 2bb – MONTH – Y/Y TOTAL worker in real terms – all employees and nonsupervisory
all employees +3.34% Y/Y
non-supervisory +3.26% Y/Y - 2bc – YEAR ENDING june 23 – Y/Y single worker in real terms – all employees and nonsupervisory
for real calculation we used the CPI year ending – is the average of the last 12 months of the CPI
all employees -2.16% Y/Y
non-supervisory -1.50% Y/Y - 2bd – YEAR ENDING june 23 – Y/Y TOTAL worker in real terms – all employees and nonsupervisory
for real calculation on usa The CPI year ending – is the average of the last 12 months of the CPI
all employees +1.73% Y/Y
non-supervisory +2.26% Y/Y - 2be – YTD june 23 – Y/Y TOTAL worker in real terms – all employees and nonsupervisory
all employees +3.80% Y/Y
non-supervisory +4.21% Y/Y
3 – RISK INDEXES OF THE SYSTEM
S&P Experian indices – May 23
first mortgage 0.49%
second mortgage 0.30%
Auto Default 0.79%
Consumer Credits 0.71%
Bankcard 3.62% – slightly higher than the 2018 average at 3.40%
SUMMARY – SYSTEM FROM THE FED’S POINT OF VIEW
-TOTAL WORKERS
- the money supply in real terms for consumption is largely positive for both all and non-supervisory employees
- SINGLE WORKER
from June it starts to be positive in real terms
The negative data Year ending – 2bc – leads the single worker to be more cautious in new purchases based on the negative bad debts of the previous months
RISK INDEXES
very low and the bankcard in line with 2017-18
low to medium risk of the system
Based on these data – for the FED which applies the classic system – the US system is holding up the current level of rates and a further 25bp increase, draining liquidity but not creating excessive problems
You have the view of the system from the point of view of the Fed based on official BLS and S&P data, which nobody has, except the Fed and the big companies who do not protest like me against Powell
Note that the expected Y/Y CPI is 2.95-3.05 a sharp drop from 4.05 prev mth
Calculation – CPI vs prev mth +0.30% comparing Y/Y vs +1.374% june/may 22
Provided by our in house actively retired institutional economist and trader Filipo aka The Prof .
More of these inside tracks view can be found in our ATS trading discord group. by ATS EcoFin.
