Many FOMC members argue that the Fed funds rate at 5.5% is very restrictive because the Fed’s r-star model says that neutral monetary policy would mean a Fed funds rate at 3%.
But maybe this r-star estimate of the terminal Fed funds rate is wrong. At least that is what the incoming data suggests.
If monetary policy is very restrictive, why are default rates going down, see the first chart?
If monetary policy is very restrictive, why is the Atlanta Fed GDP Now estimate for third quarter GDP at 2.5%, well above the CBO’s estimate of long-run growth at 2%, see the second chart?
If monetary policy is very restrictive, why is weekly data for consumer spending still strong, see the third chart?
The bottom line is that the Fed funds rate at 5.5% does not seem very restrictive.
Our latest chart book with daily and weekly indicators is available here.
Source: PitchBook LCD, Apollo Chief EconomistSource: Federal Reserve Bank of Atlanta, Haver Analytics, Apollo Chief EconomistSource: Redbook, Haver Analytics, Apollo Chief Economist
This presentation may not be distributed, transmitted or otherwise communicated to others in whole or in part without the express consent of Apollo Global Management, Inc. (together with its subsidiaries, “Apollo”).
Apollo makes no representation or warranty, expressed or implied, with respect to the accuracy, reasonableness, or completeness of any of the statements made during this presentation, including, but not limited to, statements obtained from third parties. Opinions, estimates and projections constitute the current judgment of the speaker as of the date indicated. They do not necessarily reflect the views and opinions of Apollo and are subject to change at any time without notice. Apollo does not have any responsibility to update this presentation to account for such changes. There can be no assurance that any trends discussed during this presentation will continue.
Statements made throughout this presentation are not intended to provide, and should not be relied upon for, accounting, legal or tax advice and do not constitute an investment recommendation or investment advice. Investors should make an independent investigation of the information discussed during this presentation, including consulting their tax, legal, accounting or other advisors about such information. Apollo does not act for you and is not responsible for providing you with the protections afforded to its clients. This presentation does not constitute an offer to sell, or the solicitation of an offer to buy, any security, product or service, including interest in any investment product or fund or account managed or advised by Apollo.
Certain statements made throughout this presentation may be “forward-looking” in nature. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking information. As such, undue reliance should not be placed on such statements. Forward-looking statements may be identified by the use of terminology including, but not limited to, “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology.
